Why HR needs to know about the new law on tips

"Going forward, employers will have to assess the way that tips are collected in the business," explained a Thackray Williams solicitor

According to government analysis last year, an estimated £200 million is held back from staff by companies withholding tips. Thanks to new legislation, more than 2 million workers will have their tips protected.

The way that tips are distributed between employers and their workers is currently unregulated and has led to inconsistencies in working practices across the hospitality and services sectors.

However, from 1 October 2024, this will change when the government’s Employment (Allocation of Tips) Act 2023 comes into force, making it unlawful for employers to withhold tips and service charges from staff.

Read more: Unite demands action on tipping

The legislation is being introduced following an extensive public consultation period where the government sought the input from various bodies in the hospitality sector in light of concerns regarding the surrounding tipping practices.

The Act puts a legal obligation on employers to allocate all tips, gratuities and service charges which they are paid, or which they exercise control or significant influence over (‘qualifying tips’), to workers without any deductions and that the distribution of qualifying tips between workers is fair.

The intention of the legislation is to improve fairness for workers; to not only ensure that the tips they are left by consumers go to them as intended but to also make sure that there is consistency in all employers’ obligations, and a clear set of rules to comply with. The legislation is estimated to benefit a huge number of hospitality workers, who are often paid minimum wage, including those working in pubs, cafes, restaurants, bars and hair salons.

How will this impact current business practices?

Section 9 of the Act will introduce a code of practice that employers must act in accordance with when complying with their obligation to allocate tips fairly. The code focuses on the principles of fairness and transparency, reflecting various ways that tips are reasonably collected by employers and received by workers.

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Going forward, employers will have to assess the way that tips are collected in the business, and the degree of control or significant influence they have in this process.

The code also mandates that employers must have a written policy on tips that is available to all members of staff; and keep a record of how tips have been dealt with for three years from the date received.

Consequences of non-compliance

The legislation introduces new employment rights for workers to pursue, should employers fail to comply with the Act’s requirements, and confirms that a worker can issue proceedings in the employment tribunal should there be unfair tipping practices.

If an employment tribunal finds that a complaint regarding the fairness or transparency of tipping is well-founded, it can make a public declaration to that effect. It will also be empowered to order the employer to revise a previous allocation of tips, make a non-binding recommendation on a previous allocation of tips, or order the employer to pay a worker or workers compensation. This can include other workers at the relevant place of business who have not made a complaint to the tribunal.

The outlook ahead

The Act received Royal Assent in May 2023 and was originally intended to come into force in July 2024. However, after considering the concerns from employers about the potential impact and pressures it could have on the hospitality sector, rollout by the government was pushed back to October 2024, to afford businesses additional time to make the necessary changes and to ensure that those businesses comply with the Act’s requirements.

Read more: Hospitality workers overpaying national insurance on tips

The hospitality sector has been one of the slowest sectors to recover from the height of the Covid-19 pandemic, so it is logical that there may be some government reluctance to rush the introduction of these changes.

The Act prohibits employers relying on workers’ tips for their own business purposes, so will inevitably cause them to consider how they can mitigate any losses this will cause. Conversely, in industries where tips often make up a large proportion of workers’ income, the Act’s introduction could whet the appetite of prospective job seekers considering these sectors in the future.

By Julian Munroe, associate solicitor for the law firm Thackray Williams