Breaking: Government Introduce New Tipping Rules

Many industries throughout the UK have faced an uphill battle in the last few years, none more so that the hospitality sector which has faced unprecedented challenges. From staff shortages to economic downturns through to the devastating impact of the Covid-19 pandemic on the industry.

As businesses begin to rebuild and recover, they are now faced with a new double blow, first the upcoming increase in minimum wage, covered here, and now the introduction of complex new regulations regarding tipping.

Announced yesterday, a new law will come into force on 1 October 2024 significantly altering how businesses handle tips, gratuities, and service charges. The Employment (Allocation of Tips) Act 2023 aims to ensure the fair and transparent allocation of all tips given by customers to staff, including agency workers. While the principle of sharing tips with staff is undoubtedly fair, the practical implications and administrative burdens imposed on employers under the legislation are substantial.

Why do we need this new legislation?

This legislation has been introduced in response to concerns about the way tips have been handled in some businesses, with workers not always receiving the full amount gifted by customers. The Government believes that this new law will help to protect workers’ rights, and ensure that they receive a fair share of the money tipped to its staff.

What are the changes?

Here’s a breakdown of what you need to know:

• All “qualifying tips” will belong to your staff: any tips, whether paid in cash or electronically, must be passed on to staff in full. Employers cannot retain any portion of the tips for the business.

• A tipping policy is mandatory: If a business allows customers to leave tips, on more than an occasional and exceptional basis, they must have a written tipping policy in place by 1 October 2024. This policy will outline how tips are collected, distributed, and recorded.

• Tips must be distributed fairly and transparently: Any tipping policy must clearly explain how tips will be shared among staff. Employers must be able to demonstrate that the distribution is fair and equitable. Possible factors to consider include hours worked, roles and responsibilities, or a combination of both.

• All tips must be paid in full to workers by the end of the month following the month in which they were received.

• A “tipping record” must be kept by employers for at least three years.

Drafting policies is likely to be an administrative burden for employers. All workplaces are different, with front of house staff, kitchen and bar staff often set on different rates for tipping. In addition, many employers have different levels of distributing tips dependent on the seniority of staff. Employers will now need to justify such actions, ensuring that tips are distributed in a fair and transparent manner when the employer takes control, or exerts significant influence, over their distribution. Further details on applying fairness are available in the Statutory Code of Practice linked below, which employers must have regard to.

In addition, maintaining a “tipping record”, which must be kept for a period of three years, will add additional work for hospitality managers. Workers have the right to request the tipping record, limited to one request per worker every three months and can bring claims up to 12 months following a failure by the employer to comply.

The new regulations bring further burden for employers who are already struggling with staffing and finances. With potential compensation up to £5,000 available for failure to comply, every employer should ensure that they are ready with their policy and practices in place in advance of the 1 October 2024 implementation date.

The Statutory Code of Practice for the upcoming changes can be found below.

Code of practice on fair and transparent distribution of tips (HTML version) - GOV.UK (www.gov.uk)

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.