New rules on allocating tips

The Employment (Allocation of tips) Act 2023 and its accompanying Code of Practice are set to take effect on 1 October 2024, introducing new legal requirements for how employers in England, Scotland, and Wales allocate and distribute tips, service charges and gratuities. With potential reputational damage, new Employment Tribunal claims, and tax implications for non-compliance, it’s crucial for businesses to prepare.

If your employees, workers (including zero hour workers), or agency staff receive tips, service charges, or gratuities, your business may be subject to the new rules. The key is whether these tips are “qualifying”, which includes tips:

• Received by the employer and then distributed to workers.
• Received by workers but subject to the employer’s control or significant influence over their final distribution.

The new rules require employers to:

• Allocate qualifying tips to workers in a fair and transparent manner.
• Pay 100% of qualifying tips to workers by the end of the month after receipt (only limited statutory deductions allowed).
• Have a written policy on allocating qualifying tips to available workers (unless tips are occasional and exceptional).
• Maintain records of all qualifying tips distributed and make them available to workers on request.

Employers must ensure their current policies and processes are compliant, fair, and transparent to avoid unintentional discrimination.

Even if qualifying tips are occasional and exceptional in your business, you still have a positive obligation to notify workers that this is the case.

If you have any questions, please contact 023 8046 1235 or email Alan Rolfe.