The Employment (Allocation of Tips) Act 2023: How will employers be affected?

Legislation means significant new obligations for employers.

On 2 May 2023, the Employment (Allocation of Tips) Act 2023 (“the Act”) received Royal Assent which, upon entry into force, will mean significant changes for employers who handle staff tips, for example in sectors like hospitality and leisure which have common tipping practices. The Bill places new obligations on employers to distribute tips fully, fairly and transparently and the UK Government claims this will mean around £200 million more makes its way each year to the 2.5 million workers who work in these industries.

The Bill itself was brought forward as a Private Members Bill after intentions for similar protections put forward by the UK Government in 2019 were frustrated by the ongoing delay in the appearance of the much anticipated and broader Employment Bill. The Act was also a response to changing tipping practices as tips are increasingly paid by card: meaning they go straight to the employer: rather than in cash, over which the worker remains in control.

The Act amends the Employment Rights Act 1996 to create a legal obligation on employers to give, in full, all qualifying tips, gratuities and service charges to their workers. This distribution cannot be subject to any deductions beyond those required by law, and must be paid to the workers by the end of the month following the month of receipt from the customer. The money must also be given to those workers within the establishment in which it was earned. The Act also applies to agency workers.

Employers whose workers receive tips on more than an occasional and exceptional basis are required to implement a clear and fair written policy confirming how qualifying tips will be handled. While the terms of this policy are up to the employer, it must be compatible with a statutory Code of Practice which will be issued, subject to consultation, in due course. The Code will be admissible as evidence in Employment Tribunals and will set the standards that employers seeking to avoid claims should adhere to. Alongside a written policy, employers will be obliged to maintain a record of how tips were distributed for three years following their receipt. The records can be requested and scrutinised by relevant workers.

Notably, workers will have a twelve-month window, rather than the usual three, to bring claims of alleged non-compliance by their employer with their obligations under the Act to an Employment Tribunal. This heightens the likelihood of claims arising under this legislation.

It is expected that the new Act will come into force in 2024 with the exact date to be announced later this year. This will be preceded by a further consultation and secondary legislation. In the meantime, if you are an employer wishing to prepare for the above, please get in touch.