A TIP IN THE RIGHT DIRECTION
A Tip in the Right Direction:
Navigating the UK's New Gratuity Rules
Despite the recent change in Government, the changes to the way tips, gratuities, and service charges are handled in the workplace will still come into effect on 1 October 2024.
These new rules, formalised under the Employment (Allocation of Tips) Act 2023, are designed to ensure fairness and transparency in the distribution of tips. This article provides a background to the need for the new legislation, a summary of its key provisions, and an explanation of what it means for UK employers.
Background to the legislation
For years, tipping practices across various industries, particularly in hospitality, have been subject to controversy. Workers often raised concerns about unfair deductions, unclear distribution methods, and a general lack of transparency. In some instances, employers retained a significant portion of tips or imposed administrative fees, leaving staff with less than they were entitled to. These practices have been criticised as unfair and exploitative, particularly given that tips are typically left by customers as a reward for excellent service.
“Despite changes in government, the new tipping laws are set to be implemented as planned. This consistency demonstrates the strong commitment across the political spectrum to ensuring that workers are treated fairly. HR professionals and business leaders must therefore prepare for the new requirements, ensuring their organisations are ready for compliance by 1 October 2024.”
The tipping issue gained national attention when several high-profile cases highlighted the extent of the problem, leading to calls for reform. The (then Conservative) government recognised the need for legislative change to protect workers and create a level playing field for employers who were already treating tips fairly. The new law aims to address these concerns by ensuring that all tips intended for workers actually reach them in a fair and transparent manner.
Summary of the Legislation
The Employment (Allocation of Tips) Act 2023 introduces several important provisions that will impact how businesses manage tips:
Fair and Transparent Distribution: Employers must pass on all “qualifying” tips to workers without deductions, except for necessary tax deductions. Tips must be distributed fairly and transparently among all eligible workers, including agency staff. Qualifying tips are those which an employer exercises some kind of control over (e.g. a tip added to a bill and paid through a card machine).
Written Tipping Policy: Employers are required to maintain a written policy detailing how tips are handled at their business. This policy must be made available to all workers.
Record Keeping: Employers must keep records of all tips received and how they are distributed. Workers have the right to request access to these records.
Timeframe for Distribution: Tips must be distributed to staff by the end of the month following the month in which the tips were received. For example, if a tip is left in June, it must be allocated by the end of July.
Independent Tip Distribution (Troncs): Employers can choose to distribute tips through an independent tronc system, managed by either a designated staff member or an external payroll service. The tronc operator must ensure that tips are allocated fairly in line with the law.
The statutory Code of Practice issued under the Act provides further guidance on how employers can ensure compliance, particularly in relation to fairness and transparency. Employers are advised to consider a range of factors when distributing tips, such as the type of work performed, hours worked, and team performance, while ensuring no discriminatory practices take place.
What It Means for UK Employers
For employers, the new legislation introduces several obligations that will require careful planning and compliance:
Policy Development and Communication: Employers must develop a clear, fair, and transparent tipping policy. This policy needs to be communicated to all workers, including agency staff. HR professionals will play a crucial role in drafting these policies and ensuring they are effectively communicated.
Training and Implementation: HR teams should ensure that managers and staff are trained on the new procedures, particularly around the fair allocation of tips. Any discrepancies could lead to disputes or claims in employment tribunals.
Record-Keeping Systems: Employers will need robust systems to track tips and how they are distributed. This is critical for compliance and for responding to worker requests to access tipping records.
Consultation with Workers: Employers are encouraged to consult with staff when developing their tipping policies. This helps ensure the policy is perceived as fair and reduces the risk of disputes. Workers’ involvement in these discussions can foster a sense of transparency and trust within the organisation.
Review and Adjustment: Employers should regularly review their tipping practices to ensure they remain fair and compliant with the law. Changes in the workforce, such as staff turnover or the introduction of new technology, may necessitate adjustments to the tipping policy.
Political Context and Implementation
Despite changes in government, the new tipping laws are set to be implemented as planned. This consistency demonstrates the strong commitment across the political spectrum to ensuring that workers are treated fairly. HR professionals and business leaders must therefore prepare for the new requirements, ensuring their organisations are ready for compliance by 1 October 2024. It will require careful planning and diligent management to comply with the new rules. However, with the right approach, these changes can help foster a fairer, more transparent work environment, ultimately benefiting both employers and employees alike.
By proactively addressing the upcoming changes and engaging with staff throughout the process, businesses can not only ensure compliance but also strengthen their workplace culture and employee relations.