What does the ‘Employment (Allocation of Tips) Act mean for the hospitality industry?

A new law on tipping within the hospitality industry has received Royal Assent. This will make it unlawful for employers to withhold tips from staff. It is estimated that this new law will result in an extra £200 million a year in tips going to be staff, compared to now.

The law makes it unlawful for employers to withhold tips or service charges from their employees, to ensure staff receive the tips they have earned in full. It applies to employers of all sizes where tips are paid on more than an occasional and exceptional basis.

What do employers need to do to comply with the Allocation of Tips Act?

The law will require all such employers to have in place a written policy, available to workers, that sets out how tips are distributed. It also requires that all tips are paid to workers within a month of payment by the customer.

To help demonstrate compliance, employers must maintain records for three years, showing how tips have been dealt with. Workers can request specific information regarding their employer’s tipping record within that period. The rules will apply to agency staff in the same way as directly employed staff.

The Act is light on detail, including a lack of detail about what records must be kept in order to comply. Further, there is a requirement for the employer to exercise a fair distribution of tips or ensure the fair appointment of a tronc system, but no detail has been provided as to how this is to be judged. The government has promised a Statutory Code of Practice on tipping, which it says it will provide guidance on the fair and transparent distribution of tips which employers must have regard to.

When does the Allocation of Tips Act come into force?

This may explain why the law is not expected to come into force until May 2024, as there are plenty of details to flesh out in the meantime.

I expect that the new law will be welcomed by workers in the hospitality sector, although the Government does recognise that it is only a minority of employers who do not pass on tips in full.

For hospitality employers, there will be an additional layer of bureaucracy to comply with and there may be some additional costs. For example, apart from tax, deductions cannot be made from the tips in respect of credit card processing fees or other administrative charges incurred.

Hospitality businesses will get a chance to have their say in the consultation that will lead up to the new Code of Practice.