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The new rules around tips and hospitality you need to know: The Employment (Allocation of Tips) Act 2023

The Topline

“The Government has approved new legislation regarding UK tipping laws which will have various implications for employers, especially in the hospitality sector. As a result of this new law, you might need to make changes to your current practices on the passing on of tips, and/or revise policies.”

Lucy Gordon, Partner, Employment & Immigration

Lucy Gordon on holiday pay

An image of a card machine on a desk. A visual metaphor for the topic of this post, the new rules around tips and hospitality.

What’s changed?

  • The Employment (Allocation of Tips) Act 2023, expected to come into effect on 1 July 2024, will make it unlawful for employers to withhold tips from workers. The new law will introduce a number of changes to tipping practices in the UK and, if not adhered to, could have substantial financial consequences for employers with awards of up to £5,000 per employee to reflect losses suffered.
    1. The new legislation will protect tips paid by cash and card, ensuring that tips are passed on to employees without any deductions from their employer. The tips should be allocated fairly, and all workers are protected by the new law, including those on zero-hour contracts.
      1. As the legislation does not define what ‘fair allocation’ will look like, a draft statutory Code of Practice (available here) has been provided by the Government. This Code of Practice sets out how tips should be distributed, in order to ensure transparency and compliance with the new legislation.
        1. The obligations under the new act include the total amount of the customer’s bill which will include any deductions such as bank and admin charges. This means that employers will no longer be able to apply a portion of a gratuity or tip to meet those additional charges, and will need to find an alternative way to pass on those charges to the customer.

        What the changes mean for you

        • Where tips are regularly paid to your employees, such as in your hotels, bars and restaurants, you should implement a written policy which explains the allocation of qualifying tips, and how they will be distributed in a fair and consistent manner. Having a written policy which is clear and accessible to all staff will ensure adherence with the new laws, and will help to avoid any potential employee complaints and claims. We can help to draft a policy or review one if this would be helpful.
          1. You must also keep a record of how tips are being allocated and distributed amongst your employees. Under the new law, employees will have a right to request information about an employer’s tipping record once every three months. If an employee does request a copy of your tipping records, you must comply with this request within four weeks from the date it was requested. If there are inconsistencies in your records, or if the records show that the tips have not been distributed fairly, this can be used as evidence by an employee to bring a tribunal claim.
            1. You should ensure that tips are paid to employees no later than the end of the month following the month in which the customer paid the tips. If tips have not been paid on time, an employee can claim up to £5,000 in compensation.
              1. Finally, it is important to note that there will be no transition period. This means that, in order to avoid the consequences of non-compliance, you will need to make any required changes to your business operations before the new legislation comes into effect.

              How we can support you

              If you need any assistance in reviewing your existing practices or putting in place a new policy, please contact the Employment & Immigration team.

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