Employment (Allocation of Tips) Act 2023

The Employment (Allocation of Tips) Act 2023 requires employers to pass on 100% of tips to staff with no deductions.

The Employment (Allocation of Tips) Act 2023, achieved Royal Assent on 2 May 2023 and is set to be enforced in 2024, with the commencement date to be announced later this year. The measure within the Act will be supported by a Statutory Code of Practice which is being developed and subject to a formal consultation.

This new legislation is set to benefit more than 2 million UK workers, who work in cafes, restaurants and pubs, leisure and services sectors, who often are only paid the minimum wage and heavily rely on the additional income from tips and gratuities. This often makes up a large proportion of their income. An estimated £200 million a year is set to go back into the pockets of workers, by retaining tips that would have otherwise been deducted by their employers.

Why did the Employment Allocation of Tips) Act 2023 come about

With over 190,000 businesses in the leisure, hospitality and services sectors, employing over 2 million workers, they make up a sizeable and fundamental part of the economy.

In recent years, increased concerns were raised about the handling of tips and gratuities by employers, including the evidence of extortionate administrative costs for processing tips. In some instances even completely retaining tips, and a lack of transparency to workers and consumers alike.

During the pandemic and with the rising cost of living, there has been increased pressures on the government to address these issues.

The intention of the proposed Act is to prohibit such practices and to ensure that a statutory Code of Practice in Tipping is set out, ensuring that employers pass on 100% tips to staff with no deductions, other than those required by tax law.

What does the Act say?

The Employment (Allocation of Tips) Act includes:

• A requirement for employers to pass on 100% of tips to workers (including agency workers, or zero hour contract workers), without deductions, other than those in the tax law.
• Employers must pay regard to the statutory Code of Practice which sets out transparent and fair distribution of tips principles, and where a Tronc system is in place, it will be deemed as adhering to be compliant with the Bill, provided it is run as the Bill intends.
• Tips must be paid no later than the end of the month, preceding the month in which the tip, gratuity or service charges were paid by the customer.
• Employers will be required to keep records for three years, with detailed information relating to how tips have been paid, including amounts of qualified tips received, amount of tips allocated to staff directly or through a tronc system.
• Workers will have the right to request information relating to their employers tipping record, during their period of their employment, from three years from the date they received tips.

 What happens if an employer doesn’t comply to the Act

Withholding tips from staff will become unlawful and the workers can take the following actions:

• A worker can issue a claim in an employment tribunal and if successful can make an order to redeem the payment, and must make a declaration to this effect.
• The worker can make an order requesting that the employer handles the Tips in accordance with the Act and recommend allocation of payment to one or more workers in accordance with the Act, (including for those who are not complainants or
• Make an order to an agent requiring payment to the agency worker.
• The claims must be settled within 12 months from the date of failing to comply.
• If an employer fails to comply with their obligation to keep written records a worker can file a claim for employment tribunal
• Workers can also make an order for staff compensation of up to £5000 by the employer, as a result of the employers breech in complying with the Act and for staff’s financial loss.

What next?

Employers in hospitality, services and leisure sectors whose workers receive tips, should familiarise themselves with this upcoming legislation and guidance on the Code of Practice, ensuring that they are ready and aligned with the forthcoming legislation, and have set up accurate records and processes for fair and transparent distribution of tips. This legislation may also have implications on a company’s cashflow, which may require review of strategies.

Get in touch

If you have any queries relating to the allocation of tips and gratuities and actions you should take do get in touch with our payroll team who will be happy to assist you.