On 1 October 2024, new legislation around gratuities (‘tips’) came into force via The Employment (Allocation) of Tips Act 2023.

The Act was introduced to ensure fair and transparent allocation of tips between workers (including eligible agency workers).

Employers must allocate 100% of tips to workers without deductions, except in very limited circumstances ie deduction of income tax.

Employers will need to follow the new Statutory Code of Practice Code of practice on fair and transparent distribution of tips (HTML version) – GOV.UK (www.gov.uk) when preparing and implementing their tipping policies and procedures.

In addition, employers are required to:

  • Ensure tips are distributed in a fair and transparent way.
  • Distribute tips within one month following the month in which they were received.
  • Have a written policy on how tips are dealt with (where that is more than occasionally) and ensure the policy is made available to all their workers.
  • Maintain a record of all tips paid and their allocation and distribution, to which workers have the right to request access.

There is also non-statutory guidance Distributing tips fairly: non-statutory guidance for employers – GOV.UK (www.gov.uk) providing additional help and clarification, together with a reminder of the legal implications of failing to comply with the legislation (whether through failure of distribution or failure of information).

Employment tribunals have the power to:

  • Revise a previous allocation.
  • Make a non-binding recommendation on a previous allocation.
  • Order an employer to pay a worker or workers (including other workers who have not made a complaint to the tribunal).

The tribunal may also award compensation of up to £5,000 per worker to compensate for financial loss.

Employers in tipping industries must ensure their policies and practices, including payroll systems, are compliant going forward.

Our team of expert lawyers are on hand to help – contact Zhaleh Hawkins, Partner on 0161 437 0013 or via email Zhaleh.hawkins@h-f.co.uk.

Employment Law