Preparing for the New Employment (Allocation of Tips) Act 2024 – What Employers in Hospitality, Leisure, and Service Industries Need to Know
If your business operates in the hospitality, leisure, or service industries where tipping is common practice, then you will need to be aware of the new Employment (Allocation of Tips) Act 2024.
The Act comes into force on the 1st October 2024 and creates a positive duty on employers to allocate all tips to their workers, ensuring that they are distributed in a fair and transparent manner amongst the workforce.
Who does the new Act protect?
The new Act protects both employees and workers. The protection also extends to some eligible agency workers which, generally, will cover most agency workers who are supplied by an agency and do not have a direct contract with the employer.
What does the new Act mean in practice?
Later this year, employers will need to ensure that all qualifying “tips, gratuities and service charges” are allocated fairly to their workers. A tip is said to qualify under the Act if it is one which the employer has “control or significant influence” over. Therefore, qualifying tips will catch scenarios where the tip is made directly to the employer themselves, or where it is paid to a worker, but the employer ultimately holds the authority to decide how that tip is distributed.
To comply with the new legislation, employers will be obliged to adopt a method of distribution which is fair and transparent. Fortunately, the Government has released a Code of Practice alongside the Act which sets out detailed guidance on what exactly is meant by “fair”. In short, the Code recommends that employers use clear and objective factors when deciding which proportion of the tip each worker should receive. A handful of the non-exhaustive examples set out in the Code include:
- The number of hours that the worker worked when the tip was received;
- Individual/team performance;
- The seniority of the worker; and
- The length of service the worker has with the employer.
It is crucial to note that the above factors are merely examples, and it is the employer who has final say on which factors they wish to adopt. Whichever approach is taken when deciding what is fair will also need to be transparent, and workers will need to have a clear understanding of exactly how tips are shared and the criteria which is applied when allocation is determined.
The protections of the Act
The Act effectively amends the existing definition of wages under the Employment Rights Act 1996 to expressly include tips. Accordingly, if an employer deducts a sum from a qualifying tip, save for statutory reasons such as the payment of income tax, they may then they may be liable for a claim of unlawful deduction from wages.
The Act will also introduce an onus on employers to maintain accurate records of the tips received and how they are distributed to staff. Employees and workers may request to inspect these records, and the employer will be obliged to comply with this request within 4-weeks of the date of the request. It is, however, notable that a request can only be made once in any three-month period.
What if an employer does not comply with the new Act?
Workers will be able to present a claim to an employment tribunal if their employer fails to fairly allocate qualifying tips as per the new Act, and a successful claim could result in the employer having to pay up to £5000 in compensation, with a potential uplift if there has been no adherence to the Code of Practice.
What should employers do to prepare for the new Act?
An employer could choose to engage with an independent tronc operator to handle the allocation of qualifying tips on their behalf, but they should remain mindful that, ultimately, the obligations created by the new Act are on the employer.
Employers should act now to implement or update their tipping policies to make sure that they align with the upcoming requirements of the Act. Processes and procedures should also be adopted, and systems implemented, to ensure that tips are accurately tracked, recorded, and distributed fairly. The guidance in the Code of Practice should be reviewed rigorously and employers should promptly arrange appropriate training for managers so that they are aware of what they need to do.
If your business requires support in updating policies, training or any further guidance, please contact our Employment team on 01752 292201 or clientservices@wolferstans.com.