Understanding The New Tipping Legislation In Employment Law: Is Your Business Compliant?

A new law has been enacted that introduces significant changes to tipping practices across various sectors in the UK.

The Employment Allocation of Tips Act (2023) aims to ensure greater fairness and transparency for employees and workers who rely on tips. It also places specific legal obligations on employers to handle tips appropriately. It came became law on 1stOctober 2024.

In this post, we'll explore what the act means for businesses, and offer practical advice on compliance.

What is the Employment (Allocation of Tips) Act 2023?

Historically, tipping practices in the UK and Ireland were loosely regulated. There were concerns that employers were not always transparent in how they distributed tips earned by their staff. The Act aims to address this by implementing the following:

• Ensuring that 100% of tips, gratuities and service charges be distributed to workers without deductions by employers
• Employers are now required to make payment of any outstanding tips by no later than the end of the following month in which the original tip was submitted
• Mandating that employers use a fair and transparent system to distribute tips, which might include consulting with staff on how tips are shared. This system is required to be accessible by workers in a written policy on request.
• Introducing a new statutory Code of Practice to guide employers in distributing tips fairly. This includes stipulations covering when and how tips should be shared.
• This new law applies to all businesses where tipping is part of the remuneration. This includes but isn't limited to: restaurants, bars, hotels, and hairdressers.Essentially any business where tipping would be considered a not 'out of the ordinary' practice.
• Amendments to the Employment Rights Act (1996) to include tips and its various other forms to be categorised as 'wages'. Critically, unlike the more traditional forms under the term, qualifying tips, gratuities and service charges have been made exempt from being used as forms of deduction from wages. This is irrespective of whether the employee has either provided written consent to allow the employer to do so and/or whether it is specifically stated within their contract of employment.

What steps should businesses be taking?

Businesses operating in the hospitality, leisure, and service industries must act quickly to review their tipping procedures and ensure they comply with the new law.

Non-compliance can result in legal claims and financial penalties, which could include payments for compensation (up to a maximum of £5,000) in excess of what was originally owed if an employee was successful at Tribunal. In addition, the Tribunal may also rule that payments be made to other employees who were not named as the original claimant, should they also be indirectly affected by outdated and unlawful practices by the employers.

Employees will have 12 months to bring a claim for any dispute over tip allocations from the date of the original failure to comply. Where there is a continuation of breaches, the deadline will extend to the latest failure in the series.

Companies should note that this limitation period is significantly longer than most Employment Tribunal complaints. This further amplifies the importance that businesses in the relevant sectors are implementing correct and lawful practices as soon as practicably able. The consequence of delaying implementation could result in not only a time-consuming process at Tribunal, but a costly one.

Lastly, given the nature of this Act and those who are affected under it, and with the current economic condition placing further strain on workers' earnings, this Act has been well-publicised. As such, workers will likely already be aware of their new increased rights in the workplace.

Employment law experts

At Rothera Bray, we specialise in Employment Law for businesses and can help you navigate the complexities of the new Allocation of Tips Act 2023.

For employers, we offer:

Compliance Audits: We'll review your tipping policies and practices to ensure they meet the new legal standards.

Policy Drafting: Our legal experts can assist you in drafting a clear and compliant tipping policy that fits your business model.

Legal Representation: Should you face claims because of the new legislation, our experienced solicitors can represent you in Employment Tribunals.

Licensing help: our specialist Licensing Lawyers cover all aspects of licensing in the hospitality industries, as well as training for Personal Licences.

The Employment (Allocation of Tips) Act 2023 is a positive step forward in protecting workers' rights and ensure greater transparency and fairness in tipping practices. If you're unsure about your tipping practices, contact us today for a consultation.