Top tips for employers: Income-ing legislation and code of practice on the allocation of tips

The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024.  This sits alongside the code of practice on fair and transparent distribution of tips.

What tips are covered by the code?

For qualifying tips incurred from 1 October 2024, employers have a duty to allocate tips among workers in full. Agency workers are also entitled to receive tips. It is unlawful for employers to withhold tips or make deductions before paying these to workers.

A ‘qualifying tip’ for the purposes of the legislation includes tips, gratuities and service charges which an employer exercises control or significant influence over. This includes situations where employers tell staff how to distribute cash tips or if they collect cash tips and distribute them at the end of a shift or as part of the regular payroll. Tips received by card are still qualifying tips.

‘Fair’ distribution of tips

Tips must be allocated in a fair and transparent way. The code requires employers to:

• Consider consulting with staff as soon as possible to explain the changes to the legislation
• Seek a broad agreement with employees such that the allocation is fair, reasonable and clear to employees
• Seek advice and guidance on preparing policies and training managers as soon as possible
• Maintain records of how tips have been allocated (for 3 years from the date the tip was paid)
• Ensure tips are paid no later than the end of the month following the month in which the tip was paid.

The code provides an illustrative list of factors for employers to consider when deciding on a ‘fair’ allocation of tips, such as:

• The type of role or work e.g. distribution between front of house and back-room workers
• The level of basic pay
• The amount of hours worked during a period when tips are received
• Individual or team performance
• The worker’s seniority or level of responsibility
• The length of service with the employer
• Considerations as to the customer’s intention i.e. did they intend to tip a specific worker.

Transparent distribution of tips

The code also provides guidance on what ‘transparent’ means. Employers are required to have a written tipping policy which should be accessible by all staff.  An employer will not have met its obligation to handle tips fairly and transparently if individual workers are not aware of their entitlements in line with the policy.

Top tips for employers

Employers could be liable in the employment tribunal for a failure to comply with their obligations to allocate tips. Employers should:

• Have policy setting out how the tips are to be allocated. The policy should be easily accessible and provided to all workers
• Regularly review the policy in line with staff turnover and any wider business needs and changes
• Maintain records of tip allocation for three years and make those records available to workers on request. Appropriate mechanisms to record and distribute tips should be implemented, for example including both electronic and cash tip arrangements.

Further non-statutory guidance was published last week which expands further on the Code and how employers can comply, see here.

Please do not hesitate to contact a member of the Employment team at Thomson Snell & Passmore if we can assist with helping your business to comply with these new rules.