On 2 May 2023, the Employment (Allocation of Tips) Act 2023 was given Royal Assent and is anticipated to take effect in 2024. Through making it unlawful for employers to withhold tips and service charges (‘tips’) from their staff, it is estimated that £200 million a year would end up in the pockets of workers. In this article we highlight some of the key impacts of the Act for UK employers.

What is it? 

Many workers in the hospitality industry rely on tips to supplement their salaries, and (particularly given the cost of living crisis) they can struggle if companies do not pass on the tips collected from customers. By receiving tips that would otherwise have been retained by employers, it is estimated that more than two million workers are protected by this Act.

The Act aims to alter tipping measures to ensure that all tips are paid without deduction and are divided fairly among staff members. In determining the finer details, including the meaning of ‘fairly’, the Government will issue a Code of Practice following a formal consultation, which employers will be required to have regard to.

Under the Act, qualifying tips will amount to employee wages. So, any contractual provision included in an employee’s contract of employment requiring them to reimburse tips to their employers, will be rendered void.

What are the approved measures?  

The measures projected to take effect from next year include:

• Tips go to workers: a requirement that companies give all tips to their staff in full, with no deductions (except tax).
  
  
• Maintenance of records: a requirement that employers log all tips received and maintain those records for a minimum of three years.
  
  
• Written policy: a requirement that employers have a written ‘tips’ policy, to ensure distribution of tips occurs in a fair, transparent, and consistent manner.
  
  
• Right to request tip history: workers have the right to inquire about their employer's history of tips over a given time period, and employers are required to answer requests for information within four weeks.
  
  
• Code of Practice: The government will issue a code outlining the standards that employers must follow. If a tronc system is already in existence and being used as intended by the Act, that will be considered compliance with the Act.

What are the potential consequences for failing to comply?  

If an employer breaches the new rules, a worker will be entitled to file a claim in the Employment Tribunal within 12 months of the date of breach. A claim may have the following consequences for employers:

• Employers can be required to modify their tip allocation policies by tribunals.
  
  
• Employers can be ordered by tribunals to pay tips to all of their staff, not just the worker bringing the claim.
  
  
• Compensation of up to £5,000 per person may be payable for any losses caused by failure to pay.

Next steps? 

Employers should evaluate their tipping policies and procedures in the interim, while the Act is pending implementation, to make sure they are in line with the new law.

The date of commencement for the Act, which will take effect in 2024, is anticipated to be announced later this year, now that it has received Royal Assent. After a formal consultation, the associated Code of Practice will also be drafted this year.

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