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The Employment (Allocation of Tips) Act 2023 received Royal Assent on 2 May 2023.
The new law makes it unlawful for an employer to withhold tips, gratuities, and service charges (‘tips’) that are paid by its customers and requires employers to allocate tips to their hospitality and leisure workers in a fair and transparent manner.
This means that millions of UK workers will take home an estimated £200 million more.
What does the Act say?
The Act includes:
- A requirement that the employer pay tips to their workers by no later than the end of the month following the month in which the customer paid the tip.
- A requirement that the employer has a written policy in place that deals with tips in the workplace which is shared with all workers. This will only apply to businesses that receive regular tips. If a business receives occasional or exceptional tips, the employer must confirm that they are not required to have a written policy in place and explain why.
- A requirement to keep a record of how every tip has been dealt with. This needs to include the amount of the tip and the amount that has been allocated to workers (or if an independent tronc operator has been engaged, how the tips have been allocated by them). This record must be maintained for a period of 3 years from the date that the tip was paid.
- A right that a worker can make a written request for the employer to provide their tips records for a period specified in their request. This right is limited to one request in any three-month period and is subject to several conditions. The employer must provide these records to the worker within four weeks from the date of the request.
- A right that agency workers benefit from this Act under similar terms as workers.
- A right for the Secretary of State to issue a statutory Code of Practice on Tipping to set out the principles that employers must follow when distributing their tips fairly and transparently.
Enforcement
It is important to comply with the new Act as a worker can pursue a claim in the Employment Tribunal if their employer has failed to comply with the requirements of having a written policy or the rules around their tip records.
The usual time limits to pursue a claim in the Employment Tribunal apply, that is, three months less than one day from the employer’s alleged failure to comply with the Act.
If the Employment Tribunal rules in a worker’s favour, the Tribunal can:
- Make a declaration that the employer has failed to comply with the relevant requirements;
- Make an order requiring the employer to comply with the relevant requirements; and
- Order the employer to pay the worker up to £5,000 to compensate them for any financial loss they have sustained because of the non-compliance;
In addition, if an employer has been ordered by the Tribunal to revise their tip allocation and this revision has resulted in tips being overpaid to workers, the employer will have no recourse.
This means that the employer cannot bring proceedings against the workers for the overpayment of tips and will have no choice but to absorb those losses.
What next?
Although the Act has received Royal Assent, it is not yet confirmed when the Act will come into force, but it is expected to be sometime in May 2024.
A statutory Code of Practice will support the measures in the Act.
This has not yet been released, but it is expected to be drawn up and formally consulted on later this year.
In the meantime, employers should review their current policies and practices on tipping to ensure they are ready to comply with the changes coming into force.
Employers may also consider engaging an independent tronc operator to distribute tips fairly and transparently.
An independent tronc operator is automatically considered as ‘fair’, which allows employers to focus on other parts of their business.