A new tipping act will come into effect on Tuesday 1st October 2024. New legislation will be introduced under the Employment (Allocation of Tips) Act 2023. This will bring significant changes to employment law by governing how an employer distributes customer tips among their employees and workers.
The legislation, commonly known as ‘the Tipping Act’ specifies that 100% of all tips, gratuities and service charges must be passed on to employees (including zero-hours and agency staff), without any deductions. These must be paid to employees by the end of the month that follows the month in which the tips are paid by customers. For example, tips received from customers in October must be paid to employees by the end of November.
This change in legislation is to improve fairness for employees and workers. It will ensure that any tips left by customers intended to recognise their good service and hard work are received by workers and employees. Another reason is to increase fairness amongst employers, by ensuring all employers are abiding by the same rules and preventing future unfair tipping practices.
Whilst employers must distribute 100% of tips fairly and transparently, they can choose how this is achieved. For example, they may choose to share the tips only amongst those employees who have customer contact.
Businesses such as pubs, restaurants, cafes, and bars should particularly be aware of this new legislation as it applies directly to them.
Failing to prepare could lead to an employment tribunal resulting in the tribunal ordering the employer to revise the allocation of tips or even to make a payment to one or more workers.
Employers who regularly receive tips must have a written tipping policy, including how tips are allocated between workers. In addition, they must be able to share records (upon request) of the qualifying tips they have received, and the amount of those tips allocated to the requesting worker(s).
This new Act does not cover tips paid directly to workers in cash and kept or informally pooled by workers.
Written policy
Organisations should have a fair allocation of tips policy that sets out how tips will be distributed throughout the organisation. The distribution of tips must be done in a fair, equitable, and non-discriminatory way. This policy should then be communicated to all employees.
Notify payroll
Make sure to keep payroll teams and departments up to date with the change and ensure that they are aware of how to distribute tips without deductions if they are responsible for this.
Keep records
Accurate records of tip allocation and distribution should be kept. This record should be kept for three years, starting from the day the qualifying tip, gratuity or service charge was paid. Employees can request these records and they could be used if a claim is taken to a tribunal.
Put systems in place
Implement systems to help accurately track, record and distribute tips within your organisation.
One useful system that can be put in place to divide and pay the tips is Tronc. Tronc is a system that gathers and distributes tips to staff. Those who manage the Tronc set-up are referred to as ‘Troncmasters’. Working alongside an external Troncmaster can remove the necessity to pay National Insurance (both employer and employee), pension contributions, student loans or earning attachments on tips, whilst continuing to process everything through the one PAYE scheme. This also helps adhere to HMRC regulations.
At HPC, our expert team of HR Consultants can help you prepare for these changes. We can discuss your responsibilities as an employer and offer support to ensure compliance with this new legislation moving forward. We can also provide relevant documentation such as a fair allocation of tips policy to use within your business.
To find out more information or if you require support understanding the new tipping legislation get in contact with our team of experts.
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