On 1 October 2024 legislation (accompanied by the Code of practice on fair and transparent distribution of tips) came into force governing the distribution of tips, service charges and gratuities, over which employers have ‘control and significant influence’.
Where the Employment (Allocation of Tips) Act 2023 (the ‘Tipping Act’) is not correctly applied, tribunals can order a payment of compensation of up to £5,000 per employee affected (i.e. not just the complainant) to compensate for any financial loss sustained which is attributable to the matter complained of.
Employees and workers can make a claim to an employment tribunal if their employer has either failed to share tips fairly or failed to create a written policy and keep records of tips paid.
The Tipping Act applies to:
- Service charges that go directly to the employer, e.g. via a restaurant bill.
- Tips that go to the employee first, then collected by the employer to share amongst staff.
Employers must:
- Pass on all tips to employees (which include workers and agency staff) without deductions, other than tax and National Insurance contributions.
- Have a written policy about how tips are shared in a fair and transparent way.
- Distribute tips between workers at the place of business where the tips are received i.e. not pool them across multiple sites or branches. Note, food stalls across a holiday park can be counted as a single ‘site’.
- Maintain records for three years for the tips collected at each site and their distribution. Note, staff can request a copy of the records that relate to their site and the allocation of tips to them.
- Ensure that tips are distributed no later than the end of the month after the month they have been received.
Cash tips:
- Employees can keep cash tips left on a table, if the employer does not have control or significant influence over the tip. However, this practice could cause disharmony amongst staff, particularly if the prior practice of an establishment was to distribute tips. The employer is likely to have exercised control or significant influence if they tell staff how to distribute the cash tips or collect them and distribute them at the end of a shift.
Minimum wage:
- Tips are not included in minimum wage and cannot be used to achieve this.
Tronc Systems (when one or more employees are contracted to distribute tips acting independently from the employer):
- Employers are still required to have a tip policy and ensure that the aggregate amount is recorded and fairly allocated to the tronc for them to distribute.
If you require any further information on Employment Law, please contact Ben Palmer on 0113 284 5143 or alternatively by email ben.palmer@isonharrison.co.uk.
