The Tipping Act

27th February 2024

 

Who does the Tipping Act apply to?

The Act applies to any employee receiving tips and any employer handling tips. Particularly relevant for the hospitality industry where tipping is most common.

What is the purpose of the Tipping Act?

The purpose of the Act is to ensure the fair and transparent allocation of all tips, gratuities, and service charges to workers.

What does the Tipping Act cover?

The Act covers how employers must deal with “qualifying tips”. These are tips, gratuities, and service charges received and on which employers are likely to have exercised either control or significant influence over the distribution of. Now that most transactions are paid using a bank card and therefore any tips received are banked by the employer, we expect that every employer will be exercising control over a large portion of tips received.

The Act does not cover cash tips which a worker receives and keeps, which the employer has no control over or involvement in.

When does the Tipping Act come into force?

The Act will come into force from 1 July 2024 in England, Scotland and Wales.

What are the provisions of the Tipping Act?

• Employers must pass on all tips and service charges to workers without deductions, other than tax and any other deductions required by statute. Specifically, this means that processing fees, including credit card fees, should not be deducted from qualifying tips, meaning employers will have to bear these costs and could therefore result in an increase in costs.
• Employers are required to allocate all qualifying tips fairly between workers.

It should be noted that this does not necessarily mean the employer has to allocate the same proportion of tips to all workers, but employers should have a clear and objective set of factors to determine the allocation and distribution of tips. Examples of factors that could be considered in the implementation of a tipping policy and the distribution of tips are: individual and/or team performance; length of service with the employer; the seniority or level of responsibility of the employee; and the customer’s intention of who should benefit from the tip paid.

• Employers must have regard to the Code of Practice (mentioned below) when they are distributing or influencing the distribution of tips.
• Employers must keep and maintain a written policy on how tips are dealt with, and a copy of this policy should be made available to all workers.
• Employers must maintain a record of tips paid and how the allocation has been calculated and distributed between workers – workers have the right to request access to this record. The record must be kept for 3 years from the date on which the tip was received.
• Payment must be made to workers by the end of the month following that in which the tip is received from the customer (so a tip received in July should be paid to workers by the end of August).
• Failure to comply with fair allocation of tips, maintaining a written policy, or preparing adequate records can result in cases being brought by workers at an Employment Tribunal. The Tribunal will be able to award compensation of up to £5,000 to each claimant

What guidance is available?

The government has issued a draft Code of Practice to help employers implement the provisions of the Tipping Act.  We expect the final version to be published soon.  Further information can be found here.

Please talk to your usual contact at Thompson Jenner to find out how we can help with the implementation of a suitable system.