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Employment: Allocation of Tips

The Employment (Allocation of Tips) Act 2023 (‘the Act’) comes into force on 1 October 2024. It seeks to address complaints about employers unfairly retaining or dividing tips.

The Act regulates how employers allocate tips by introducing obligations to ensure that workers receive tips, gratuities and services charges in full and that tips are allocated in a fair and transparent way.

What are qualifying tips?

The Act only applies to qualifying tips. These include:

  • All employer received tips, being tips paid by the customer which are either received by the employer or by another person under a payment arrangement. This includes tips made by credit or debit card and paid into the employer’s bank account.
  • Certain worker-received tips, being tips paid by the customer which are received by a worker. Worker-received tips will only be qualifying tips if they are either subject to employer control or the employer has significant influence over the distribution of tips, or are connected with any other worker-received tips that are subject to employer control.

What does the Act mean for employers?

  • All tips paid by customers on or after 1 October 2024 must be distributed fairly to workers, including eligible agency workers.
  • The Act prevents employers from using tips to supplement wages above the National Minimum Wage.
  • Employers must distribute all tips to workers without deductions (aside from deductions required by law, such as tax and National Insurance contributions).
  • Employers will need to ensure that qualifying tips are paid to the workers no later than the end of the following month after receipt from the customer.
  • Employers need to have and share their tipping policy with both staff and agency workers.
  • Employers should maintain a record should a claim arise. Indeed, workers will be able to request information on their tips distribution every quarter, and they could bring a claim against their employer in the Employment Tribunal if they believe their tips have been unfairly distributed.
  • Allocation of tips can be done by an independent tronc operator, to ensure compliance and fairness.

Please contact us if you would like more information about the issues raised in this article or any other aspect of employment law at 029 2034 5511 or employment@berrysmith.com.