Allocation of tips – new code of practice

If you are involved in the hospitality industry, you’ll probably be aware of the Employment (Allocation of Tips) Act 2023. It’s not exactly light reading. However, the intent of the Act is quite simple. It is to “ensure that tips, gratuities and service charges are allocated to workers”.

The Employment (Allocation of Tips) Act came into force on 1st October 2024. To help employers understand their responsibilities, the Department for Business & Trade has published statutory guidance. This is called the Code of practice on fair and transparent distribution of tips.

To give you an insight into this code of practice, this article looks at its main provisions.

Guidance for the allocation of tips

For the purpose of the guidance, tips, gratuities and service charges are bundled together under the catch-all term ‘tips’.

The guidance explains in some detail The Employment (Allocation of Tips) Act’s purpose. In short, the Act seeks to:

• Make sure tips are passed on to workers without deductions (except in certain situations, such as the deduction of income tax).
• Ensure tips are distributed in a fair and transparent way – particularly where an employer controls or has significant influence over their distribution. An example would be where the employer receives a tip by bank card, along with the price of a meal.

What the Act does not control is tips received in cash or digitally (via an app) by an individual employee. It’s also worth noting that the Act applies to all workers, but not to self-employed people.

How employers can comply

To comply with The Employment (Allocation of Tips) Act, there are several things employers need to do. These include:

• Having a written policy on how tips are dealt with. It must be made available to all workers. However, if staff only receive tips very occasionally – the guidance gives the example of a clothing shop – then a policy is not necessary.
• Allocating tips using a clear and objective set of factors. These will vary from business to business, but could include things like the hours worked when tips are received, seniority of staff, length of time served with the employer, or customer intention. Employers must also avoid any unlawful or indirect discrimination. It’s a good idea to consult with staff when agreeing procedures for the allocation of tips. Their considerations should then be factored into the written policy.
• Making sure all tips are distributed by the end of the month after the month in which the tip was given. This is the very latest time that tips can be distributed.
• Maintaining a tipping record for three years after a tip is made. This needs to include all qualifying tips and the amount allocated to each person.

It’s worth noting that employees have the right to make a written request to view a tipping record. The information that can ask for includes the total amount of tips in a period, plus the amount allocated to the requesting individual. Requests are limited to once in every three-month period. However, requests can be for any period going back three years (assuming the individual was employed during that period).

Other considerations for the allocation of tips

There are a few other things employers need to bear in mind to ensure tips are allocated fairly. Firstly, you must make sure that agency or temporary staff are not disadvantaged. Secondly, it is vital to have clear communication with staff. The guidance says: “An employer cannot be said to have met its obligation to handle tips fairly and transparently if individual workers are not aware of their entitlements in line with the tipping policy.” So make sure your policy is clear, easy to read and easily accessible for all staff.

One other consideration is for employees who assign a tronc master. This can either be an employee or an independent party responsible for allocating and distributing tips. However, if an employer believes the tronc is being operated in and unfair manner, they have a responsibility to act.

Payroll considerations

Many employers distribute tips via their payroll, which can sometimes get complicated. If you’d like help making sure allocation of tips is done fairly and accurately, you may want to consider our payroll outsourcing services. Drop us a line today to find out more.