Tips, gratuities and service charges

Holding back tips and service charges from workers will be made illegal from 1 October 2024.

Starting life as a Private Members’ Bill, the Employment (Allocation of Tips) Bill received Royal Assent on 2 May 2023. The government first committed to banning employers from making deductions from staff tips back in 2018.

The Employment (Allocation of Tips) Act 2023 amends the Employment Rights Act 1996 by inserting new sections 27C-Y to create a statutory obligation on employers to allocate tips, gratuities and service charges to workers without deductions. It covers ‘qualifying tips, gratuities and service charges’, namely tips received directly by employers, associated persons, etc. (e.g. tips or service charges paid to an employer using a credit or debit card) and worker-received tips which are subject to employer control (e.g. where the employer directs that tips are shared amongst other workers). The Act does not interfere with existing tipping practices where tips are paid directly to workers in cash and kept or informally pooled by the workers themselves, i.e. where the employer does not exercise control or significant influence over the tips. There are specific provisions where tips are distributed via a tronc (s. 3 of the Act deems fair use of an independent tronc operator by an employer to be compliance with its obligations of fair distribution). Qualifying tips must be paid no later than the end of the month following the month in which they were paid by the customer. As well as those working directly for hospitality businesses, agency workers supplied to such businesses will also be covered.

Employers will have to ensure that the total amount of the qualifying tips is allocated ‘fairly’ between workers at the particular place of business. There is a statutory Code of Practice on Fair and Transparent Distribution of Tips to provide guidance to employers on what amounts to a fair allocation. This also comes into force on 1 October 2024.

The Act introduces new rights for workers, including the ability to request information about how tips are paid and the right to bring a claim if their employer has failed to comply with the new obligations. Claims relating to the allocation of tips can be brought up to 12 months after the alleged failure to comply took place (unlike the usual 3-month limitation on tribunal claims). Tribunals will have various powers, including the ability to order employers to revise the allocation of tips or to make a payment to one or more workers.

Where tips are paid on more than an occasional and exceptional basis, employers will be required to have a written policy in place covering matters such as how it allocates tips, etc. Affected employers will also be required to keep records of their tipping practices for at least three years beginning with the date on which the tips were paid.