New employment rights for over 3 million workers from 1st October 2024.
It is estimated that more than 3 million service workers [1] in England, Scotland and Wales acquired new employment rights on 1st October 2024 when the Employment Allocation of Tips Act 2023, otherwise known as the “Tipping Act”, came into force.
Introduction
The Tipping Act applies to all “tips gratuities and service charges” over which an employer exercises control or significant influence and applies to all tips paid by customers on or after 1st October 2024.
The Act inserts new provisions in the Employment Rights Act 1996 (ss.27C-27X), the main aims of which are to ensure employers:
- pass on tips to workers without deductions, other than usual tax and National Insurance;
- share those tips between workers in a fair and transparent way, following a Code of Practice; and
- have a written policy about those tips and keep records of them.
It applies to all workers including permanent staff, agency workers and zero hours workers.
Employers in the hospitality industry are likely to be impacted most. The legislation is designed to remove what the Department for Business and Trade described as ‘unacceptable tipping practices’. The Government estimates[2] that the Act could result in an additional £200 million in revenue being passed on to workers.
Types of tips
The new provisions apply to tips paid by cash, card, or an alternative method such as mobile app (e.g ApplePay) or via a QR code. It also applies to non-monetary tips such as vouchers, stamps, tokens or similar items with a fixed value which can be expressed in monetary terms or exchanged for money, goods or service, for example. a casino chip given as a tip to a casino worker.
Where a worker receives a tip directly from a customer, without any employer control or involvement, it may fall outside the scope of the Act. However, where employers operate a policy of pooling tips, that could bring the tips back under the employer’s control.
No deductions
Under the new law, employers are obliged to pass on qualifying tips to workers, without deduction, other than tax and NI. They are also prohibited from using the tips to make up employees’ minimum wage.
Monthly distribution
Tips must be distributed in full no later than the following month in which the customer paid the tip. They may be distributed as part of their payroll, or using a tronc scheme. Various tronc arrangements are permitted; an employer may directly appoint a member of staff to act as an independent tronc operator to allocate and distribute tips. Alternatively, they may appoint an external tronc operator, or a member of staff elected or agreed upon by the workers.
Policy
Where qualifying tips are paid at an employer’s business on “more than an occasion and exceptional basis”, employers must have a written policy in place which must include information on whether the employer requires or encourages customers to pay tips, gratuities and service charges, and how the employer ensures that tips, gratuities and service charges are dealt with, including how they allocate them between workers. The employer must make the policy available to all its workers at the place of business.
Fair distribution
There is a new legal obligation under s.27D ERA 1996 to allocate tips “fairly” between workers. This begs the question; what exactly is a fair distribution? Employers must follow the statutory guidance in the Code of Practice on fair and transparent distribution of tips[3]. The Code of Practice sets out general principles of fairness for distribution purposes (paragraphs 19-26) but states that ultimately it is up to each employer to determine which specific principles apply best to their business.
The Code makes clear that a “fair” allocation does not require an employer to allocate the same proportion of tips to all workers. However, according to the Code, employers are expected to use a clear and objective set of factors to determine the allocation and distribution of tips.
The Code gives examples of objective criteria:
- Type of role / work for example distribution between front of house and backroom workers,
- Basic pay (and how workers are engaged),
- Hours worked during period when tips are received,
- Individual and/or team performance,
- Seniority / level of responsibility,
- Length of time served with the employer, and
- Customer intention,
although the list is not exhaustive.
Employers must be careful to ensure that they avoid any form of unlawful discrimination in the selection and application of factors for allocating and distributing tips, and must taken extra care to avoid indirect discrimination. The Code states that employers should consult with workers to seek broad agreement that the system of allocation of tips is fair, reasonable and clear.
Record-keeping
Employers must also keep records of how every tip is dealt with and distributed and workers can make requests those records. The records must be kept for period of 3 years beginning with the date on which the qualifying tip, gratuity or service charge was paid.
Disputes
Where tipping disputes arise, the Code suggests that workers and employers should try to resolve those disputes internally, either informally or by a grievance process. However, if the dispute is not resolved internally, workers can enforce some of their rights through a claim to the Employment Tribunal:
- Workers can bring a claim for failure to comply with the requirements surrounding how and when tips are distributed. A complaint of this type must be presented to the Tribunal within either:
-
- twelve months of the failure to comply, or
- twelve months of the most recent failure to comply (in the event of multiple failures).
- Workers can also bring a claim for failure to comply with the requirements surrounding the written tipping policy and tipping records. In that case, the complaint must be presented to the ET within either:
-
- 3 months of the failure to comply, or
- 3 months of the most recent failure to comply (in the event of multiple failures).
In both cases, Tribunal may consider a complaint later than prescribed time limit, if it satisfied it was not reasonably practicable for the complaint to be presented within the primary time limit. The time limits may be extended by Acas early conciliation in the usual way.
Remedy
If an Employment Tribunal finds that a complaint about fairness or transparency in tipping is well founded, it can make a public declaration to that effect and order the employer to revise a previous allocation to tips. The Tribunal may also make a non- binding recommendation on a previous allocation of tips, and order the employer to make a payment a worker or workers, which can include other workers at the relevant place of business who have not made a complaint to the Tribunal. The Tribunal may also order an employer to pay compensation of up to £5,000 for any financial loss suffered by the claimant because of the breach. If a Tribunal orders an employer to revise a previous allocation of tips, the employer cannot require other workers to repay any past over-allocation of tips.
If an Employment Tribunal upholds a complaint about failure to comply with duties regarding policies or records, it may order the employer to comply and may also order compensation of up to £5,000 for financial loss suffered by the worker because of the breach.
Wages
In addition, the Act amends the definition of wages under s.27 ERA 1996 to expressly include “qualifying tips, gratuities and service charges”. As a result, a claim for unlawful deductions from wages may be brought in respect of qualifying tips. Any contractual terms or written consent authorising deductions will not be effective, so deductions other than those required by law (such as tax and National Insurance contributions) are prohibited.
Non-statutory guidance
In addition to the Code, non-statutory guidance for employers[4] was published on 27/09/2024 including practical information on employment tribunal claims.
Conclusion
The first claims under the new legislation may not be lodged for some time yet and until then the legislation will remain untested. But in the meantime, businesses handling “qualifying tips” should ensure they:
- Review their existing tipping policies;
- Establish transparent distribution procedures; and
- Maintain accurate records of how tips are distributed.
For more information or advice on the Tipping Act, policies and procedures, please contact Lisa Hatch or the Clerks at 1EC Barristers.
Lisa Hatch advises on all aspects of employment law.
[1] https://www.bbc.co.uk/news/articles/czj9mxnyezdo
[2] https://www.gov.uk/government/news/millions-to-take-home-more-cash-as-tipping-laws-come-into-force
[3] https://www.gov.uk/government/publications/distributing-tips-fairly-statutory-code-of-practice
[4] https://www.gov.uk/government/publications/distributing-tips-fairly-non-statutory-guidance-for-employers/distributing-tips-fairly-non-statutory-guidance-for-employers
