New law on tipping - What employers need to know
Published Oct 22, 2024
On 1st October 2024 a new Tipping Act came into effect. The new law titled The Employment (Allocation of Tips) Act 2023 requires employers to pass on 100% of gratuities to staff without deductions. It will protect more than two million workers, mostly in hospitality, by ensuring they receive a fair share of tips collected by their employer.
The legislation applies to agency workers and zero hours workers but not to the self-employed.
Under the law employers must pass on “qualifying tips” in a transparent manner to employees. These are tips that are received by the employer, subject to the employer’s control or connected to worker received tips that are subject to employer control. Most common “qualifying tips” are those where the employer receives the money first and then allocates it to the worker.
Qualifying tips will include:
Cash tips if the employer has told staff how these should be distributed or if they collect tips and distribute them at the end of the shift (or as a part of regular payroll).
Tips paid by electronic means. These are employer received tips which must be distributed fairly.
Non-monetary tips such as a voucher, stamp, token, or a similar item with a fixed value which can be expressed in monetary terms or exchanged for money, goods or services.
Tips and National Minimum Wage
Tips must be paid in addition to the NMW. All workers must still receive the NMW and with tips paid in addition.
Allocating tips
There are various methods by which tips can be allocated by an employer. An employer may receive the tips directly and then pay workers their share of the tips as part of the next payroll cycle.
Tronc Schemes
Alternatively an employer can choose to allocate and distribute tips fairly and transparently by using a Tronc Scheme. A Tronc scheme is where the employer appoints an employee to be responsible for independently allocating and distributing tips. A Tronc scheme operator may also be an external payroll or accountancy firm or a member of staff elected or agreed upon by workers.
Code of practice
The Government has issued a code of practice which you can review here: Code of practice on fair and transparent distribution of tips (HTML version) - GOV.UK (www.gov.uk)
Claims
Remember that if an employer does not fairly pay tips to workers they will have the right to bring a Tribunal claim for unlawful deduction of wages.
Further information on the legislation can be found on the ACAS website here: What the law says - Tips and service charges - Acas