Hospitality & Leisure: Employment Law Update

As we have previously discussed, the Government are also set to introduce the Employment (Allocation of Tips) Act 2023 this year. On 29 July 2024, the Act’s accompanying statutory code of practice was published, and it was announced the Act will come into force on 1 October 2024.

The Act will make it compulsory for all qualifying tips to be passed on to workers without any deductions. Key points of the Act include:

• A distinction between employer-received and worker-received tips, though both will constitute ‘qualifying tips, gratuities and service charges’.
• Employers must ensure that qualifying tips are allocated fairly between their workers at the place of business, having regard to the code of practice.
• A qualifying tip payment must be made no later than the end of the month following the month in which it was paid by the customer.
• Where qualifying tips are paid at, or attributable to, an employer’s place of business ‘on more than an occasional and exceptional basis’, the employer must:
• Have a written policy on managing qualifying tips. This must include whether the employer requires or encourages customers to pay tips, gratuities and service charges and how the employer ensures they are dealt with in accordance with the legislation, including how they are allocated between workers. This policy must be available to all workers at the place of business.
• Create a record of how every qualifying tip has been dealt with in accordance with the legislation, and maintain this record for three years from the date the tip was paid. This record must include the amount of qualifying tips, gratuities and service charges paid at, or otherwise attributable to, the place of business and the amount of these payments that the employer has allocated to workers.
• Workers are able to present complaints to an Employment Tribunal that their employer has failed to comply with the Act in relation to how or when tips were paid.

Employers must comply with the code of practice on distributing tips, which sets out overarching principles for employers on what ‘fairness’ is for the Act’s purposes.

Factors that may be taken into account by employers when it comes to allocating and distributing tips include the type of work done by workers, basic pay levels, hours worked and individual and/or team performance.

The code also states that businesses should consult with workers to determine whether there is a ‘broad agreement’ on whether the employer’s ‘system of allocation of tips is fair, reasonable and clear’.

However, the code of practice does not clarify what a ‘fair’ allocation of tips ought to look like. Further, it is likely that the Act’s introduction will see a need for further administrative work for employers in the hospitality and leisure industry, given the requirement that many will face of having to maintain a record of tips.