Employment (Allocation of Tips) Act 2023
The law is changing on how tips and distributed to staff. There is no law around how to distribute tips to staff currently, and no law requiring employers to pass tips on to staff. Many businesses have ethical policies in place to ensure staff receive tips, but it is not a legal requirement. On 1 October 2024 a new law will become effective that changes this.
What It Is
A new Act that aims to improve the fairness in how tips left by consumers are distributed to staff. It’s purpose is to change tipping practices and create a level playing field for employers who already allocate tips fairly, ensuring all employers use the same practice and follow the same rules.
What It Means
Business will no longer be able to keep tips from staff. They will have to make sure all staff receive their tips in full, with very few exceptions. It’s worth noting that “staff” includes agency workers. Retaining tips meant for staff will become an illegal practice, so businesses will need to make sure tips are distributed fairly amongst staff.
How To Distribute Tips
The new Act does not mean you have to distribute tips evenly across all staff. There is no hard and fast rule on how you should decide your policy for distribution. However, any policy you put in place will need to be fair and a transparent process, and you will need to be able to prove your policy if questioned.
Employee Rights
Your employees have the right to be treated fairly when it comes to distribution of tips. The only way to protect your business is to form a compliant policy on how to distribute tips, document it, and stick to it. Your employees will have the right to request information relating to your tipping policy, and they are entitled to request it once in every three months. They can also use your policy against you in a tribunal claim if it comes to it. It’s therefore important to ensure you have a fair, clear and transparent policy in place and documented.
What You Need In Place
From 1 October 2024, you must have the following in place:
- A documented tipping policy clearly demonstrating how you allocate tips fairly
- Written records of tips given to staff
- A fair and unbiased process for resolving concerns raised by staff that feel they have not received a fair tip
- A clear process for managing customer queries on your tipping records
What You Need To Do
Whilst this Act does not come into force until 1 October 2024, you need to act now to determine what actions you need to take in order to be compliant. Here’s some things you might want to consider:
- Is your current policy fair, clear and transparent – and documented. If not, what do you need to change in order to make it so
- Can you demonstrate your policy to employees, customers, or to HMRC, if requested
- What current practices will need to change, if any
- How will you identify affected workers
Final Note
Finally, it’s worth noting that there are strict rules on the tax and NIC treatment of tips, determined by an assessment of how tips are handled, and who manages the process. This treatment will not be changing, however you should consider that any change to your tipping policy could affect the assessment of how tips are treated for tax and NIC. If you’re not sure, you should contact your accountant or payroll provider to seek clarification.