Employment (allocation of tips) Act 2023

What you need to know about the allocation of tips bill

On 2nd May 2023, the Employment (allocation of tips) Act 2023 received Royal Assent. Once it comes into effect, it will be unlawful for employers to hold back service charges from their workers and requires them to ensure that all tips are allocated fairly between its workers. The government estimates that £200 million a year will go back into the pockets of hospitality staff as a result of the changes.

The Act is due to come into effect in 2024 (with the exact date to be confirmed) following a period of consultation and secondary legislation. The secondary legislation will include a statutory code of practice which will set out how employers can ensure that the distribution of tips is fair and transparent. 

Who does the act apply to?

The Act will apply to employees as well as workers and agency staff and includes the allocation and payment of tips, gratuities, and service charges processed through a tronc. The Act defines an “independent tronc operator” as someone who the employer reasonable considers to be operating or intending to operate independently of the employer.

What obligations will employers have?

In summary, the obligations imposed by the Act are as follows:

  • The total number of tips, gratuities and service charges must be allocated fairly and in a transparent way;
  • Employers cannot make deductions from tips received, save for tax and national insurance;
  • Employers must keep a record of how the tips are allocated, and these records must be kept for 3 years from the date the tip is received by the worker;
  • The allocation of tips must occur on the premises where the tips were earned;
  • Tips must be paid to workers by the end of the following month in which the tip was received;
  • Employers must have a written policy explaining how the tips will be allocated;
  • Workers will receive a right to request more information relating to the employer’s tipping records; and
  • Employers have discretion over how they record the allocation and have 4 weeks to respond to a worker’s request for information.

How is the act enforced?

The Act provides that workers can make claims to the employment tribunal complaining about the allocation of tips or about the failure to comply with its obligations. Such a claim can be brought within 12 months of the date of the alleged failure.

If the tribunal decides in favour of the worker, it may require / order the employer to: 

  • comply with the requirement to have a written policy and maintain and provide records;
  • revise its policy on the allocation of tips; and / or
  • pay the tips to the worker and any other workers affected by the employer’s failure/breach.

The Tribunal may also award up to £5,000.00 per worker to reflect any additional financial losses caused by non-payment of tips.

What must employers do now?

As the Act is not coming into force until 2024, there is still time for employers to get prepared. Employers should review any existing policies / practices regarding the allocation of tips and the use of troncs to ensure that they are compliant with the Act (and with the Code of Practice, once that is published). Where employers do not currently have a written policy, they should work on preparing one so that they are compliant when the changes coming into effect. Employers will also need to ensure that they have a mechanism for recording the tips and their allocation to staff and decide who they will communicate any changes they will be introducing.

How Moore Barlow can help

If you would like the business employment team at Moore Barlow to advise you on your tips policy or help you to draft a new one, please do not hesitate to contact us.

As a hospitality business owner or manager, you will know how time-consuming and costly employee issues can be. This is a complex area of the law, and you need to be confident your business is fully compliant and that you are meeting your responsibilities as an employer.