The law on how tips can be allocated and distributed amongst staff changed in October 2024, with the long-awaited implementation of The Allocation of Tips Act 2023: aka, the “Tipping Act”.
To accompany the Tipping Act, there is a new “Code of Practice on Fair and Transparent Distribution of Tips”. This Code sets out the minimum procedure that employers must follow in relation to distributing tips amongst staff.
The Tipping Act amends the Employment Rights Act 1996 so that employers are now required to:
- Pass on all tips and service charges to workers without deductions, except in very limited circumstances (such as deduction of income tax);
- Ensure that tips are distributed in a fair and transparent manner, following the Code;
- Maintain a written policy on how tips are dealt with at their place(s) of business, and ensure this policy is made available to all staff; and
- Maintain records of all tips paid and how they have been allocated/distributed between staff members. Staff have the right to request access to these records at any time.
Who does the Tipping Act and Code of Practice apply to?
The Act and Code applies to all employees and workers, including agency workers. However, those who are genuinely self-employed are not entitled to tips under the new Act.
What constitutes a tip or service charge, for the purpose of the Act (and Code)?
“Tips” are defined as any kind of gratuity paid by a customer for good service, including discretionary and compulsory service charges. This does not have to be cash, but it does have to be equivalent to a fixed sum of money, and capable of being exchanged for money, goods or services. For example, vouchers, money-off coupons, or casino chips.
Tips and service charges will fall within the scope of the Act where the employer has “control and significant influence” over the tips. The Act, therefore, will not apply where the employer does not have control over the tips given to the employee/worker by the customers they are serving. An example would be where staff are permitted to keep cash that customers leave on their table after paying the bill.
Are there any “tips” that don’t fall under the scope of the new Act?
The Act won’t apply to gifts given to a staff member by a customer for good service, where the gift cannot be split up and distributed equally amongst staff members. An example of this would be where a customer gifts a staff member with a bottle of wine. In these circumstances, the individual can keep the gift.
When must the employer pay tips to staff?
Under the Act, all tips must be distributed/allocated and paid to each staff member within one month of the tip being made.
What if an employer doesn’t comply with the Act or the Code?
The affected staff member(s) can seek redress through an informal process or a formal grievance, and ultimately via an Employment Tribunal.
Top ‘tips’ for employers:
- Have a clear, transparent policy regarding how tips will be collected and allocated, including which staff are eligible to receive a share. As a rule of thumb, any staff who provide direct customer service should be in scope to receive tips!
- Communicate this policy to staff, seek their input, and address any concerns.
- Have clear signs within the workplace explaining to customers how tips are allocated.
- Maintain clear and accurate records showing how tips are received and distributed – be aware that staff can request access to these records at any time.
- Make sure that tips are not factored into the staff member’s hourly rate, which should be at least National Minimum Wage before tips.
- Ensure you have read the Code of Practice, and do not implement any practices or processes which are prohibited by the Code or the law – for example, pooling tips across multiple branches.
Want to know more? Contact our employment law expert, Jane Smith: [email protected].
This article was first published in the April 2025 edition of our newsletter, Moore Law Monthly. Join our mailing list by signing up on our Linktree here: https://linktr.ee/moorelaw.