Employment Law Update: Hospitality industry faces delay in allocation of tips act 2023

The Government recently announced a change to employment law regarding tips given to hospitality workers. The Employment (Allocation of Tips) Act 2023 (the “Act”) is set to address longstanding concerns about fair compensation for service workers. The Act was anticipated to become law on 1 July 2024; however, the Government have now announced a delay until 1 October 2024.

What does this Act mean for service workers and their employers in hospitality and other sectors? Steph Marsh, Head of Coodes’ Employment Team, explains…

What is the Employment (Allocation of Tips) Act 2023?

The Employment (Allocation of Tips) Act 2023 is a new piece of legislation within the realm of employment law. The idea is to reform the way tips and gratuities are distributed among those working in hospitality, retail, and other service industries. This has also now been extended to include agency workers too.

Under this Act, employers must ensure that all tips are supplied to staff in a fair manner. Tips and service charges must also be paid at the end of the following month from when they were received. They must also be given to staff who work at the same venue where the tip or service charge was received. Exceptions are made for staff who work remotely but are still directly involved with a particular venue.

Current Obligations in Hospitality

Currently, the Code of Best Practice (“the Old Code”) governs how tips are handled by employers in the hospitality sector. This includes tourism, leisure, and retail sectors too. There is no obligation for employers to follow the Old Code but if they do, they should have a policy outlining the basic rules. For example, how tips are distributed and shared, who is managing the tips, and how they are paid to the employees.

Currently, only cash tips given to employees are protected and employees should receive these payments in their entirety. Tips, gratuity, and service charges paid by card are often subject to various deductions by employers. Typically, these are then invested back into the business.

This new Act will solidify employment law regarding the allocation of tips for hospitality workers. It will have an impact on any employer who is required to pay tips to its employees.

How the Act will Affect Employers

As of 1 October 2024, employers will have to manage “employer-received tips” slightly differently. Although, the rules around “employee-received tips” will not change.

Under the new employment law, employers have an obligation to pass tips on to employees and it will be illegal to withhold tips from them. Cash tips are already protected but the Act goes a step further extending this protection to cover card payments. Employers will no longer be allowed to make deductions from the tips received (e.g. deductions for admin, breakages, till shortages, walk-outs, etc.).

If tips are received more than occasionally by a business, there is a new requirement to introduce a Tipping Policy. A new right to request a copy of the tipping record is introduced to employees. This means they will be able to bring a claim to the Employment Tribunal in cases where tips are not being handled properly and in accordance with the Act.

Employers will also be required to comply with a new statutory Code of Practice when distributing tips.

Complying with the New Employment Law

If you are an employer receiving tips and are unsure how the Act will affect you, contact our specialist Employment team. We will be able to provide advice and assist with drafting a Tipping Policy. Steph Marsh, Head of the Employment Team at Coodes, will be available for any questions you might have. Contact Steph on 01579 324017or email steph.marsh@coodes.co.uk