UK: Code of Practice on the New Tipping Act—What Employers Need to Know

The Employment (Allocation of Tips) Act 2023 (the “Tipping Act”) took effect Oct. 1 in the United Kingdom. The Department for Business and Trade recently published its Code of Practice on the Fair and Transparent Distribution of Tips (the “code”), which also took effect on that date.

The code provides useful guidance for employers regarding how to implement the Tipping Act. The code is not legally binding, so a breach of the code will not necessarily result in a breach of the Tipping Act. However, tribunals will take into account any breach of the code when assessing whether an employer has acted in compliance with the Tipping Act.

The Tipping Act—A Quick Summary of New Obligations

The Tipping Act amends the Employment Rights Act 1996 to create statutory requirements for employers regarding the allocation of tips, gratuities, and service charges (collectively referred to as “tips”) to workers.

Employers will be required to:

• Pass on all tips to workers (including agency workers) without deductions (save for in very limited circumstances, such as deductions for income tax).
• Ensure that all tips are distributed in a fair and transparent manner.
• Pay tips to workers by the end of the month following the month in which customers paid the tips.
• Have a written policy on how tips are dealt with and ensure that the policy is made available to all workers.
• Maintain a record (for three years) of all tips paid to each worker. Workers will have a right to request access to this record—limited to one request per worker in a three-month period.
• Workers can bring a claim against their employer in the Employment Tribunal for failure to comply with the Tipping Act.

Key Takeaways from the Code

1. Qualifying tips and qualifying workers

• The new provisions only apply to “qualifying tips.” The determining factor in whether a tip is qualifying or not is whether the employer receives or exercises control or significant influence over the distribution of tips.
• The Tipping Act will always apply when an employer receives the tips (for example, by card payments or apps) and then allocates them to workers. The Tipping Act will also apply to situations where the worker receives the tips but the employer has a rule or policy that all tips must be pooled together and distributed at the end of a shift or as part of payroll.
• “Tips, Gratuities, and Service Charges” can include nonmonetary tips that have a fixed cash value (such as a casino chip or a voucher).
• The Tipping Act will not apply to cash tips received by workers if the employer has no control over the distribution of the tips (that is, where the workers receive and keep their tips).
• The Tipping Act applies to all workers, including agency workers (but not those who are self-employed).

2. Fair allocation and distribution

• Employers can promote fairness by ensuring that all workers are aware of and have access to the employer’s written tipping policy.
• The fair allocation of tips does not require employers to allocate the same proportion of tips to all workers. However, employers should be transparent about why allocations may differ and give due consideration to all of the workers involved in providing services to customers.
• Here is a nonexhaustive list of factors that employers may take into account when allocating tips: 1) type of role, 2) basic pay, 3) hours worked during the period when the tips are received, 4) individual/team performance, 5) seniority/level of responsibility, 6) length of service, and 7) customer intention.
• Employers should take care to avoid discrimination when determining and applying factors for allocating tips. They should also give particular consideration to whether their tipping policy or practice is indirectly discriminatory (that is, where the policy places people with a particular protected characteristic at a disadvantage).
• Employers should consult with workers to seek broad agreement in the workplace that the system of allocation of tips is fair, reasonable, and clear. The code does not impose an obligation on employers to consult with workers or to reach an agreement on the policy proposed; however, it recommends consultation as a way to minimize the risk of discrimination.

3. Methods of allocation of tips

• Employers can choose to receive and allocate tips directly to workers.
• Employers can use a “tronc” to allocate and distribute tips, but they must maintain independence in doing so. This means that employers can either continue to have a member of staff serve as the “troncmaster” as long as they are able to act independently or use an external payroll or accountancy firm as the tronc operator. However, it is worth noting that if the employer becomes aware that the tronc operator is not acting fairly, they are obliged to address the issue in order to maintain a fair allocation of tips.

4. Transparency

• Employers must have a written policy for tipping, and workers must be aware of their entitlements under the employer’s policy.
• All staff should have the same access to the same policy. The policy must be written in plain language, and employers must provide an accessible format for any worker with a disability, on request.
• Employers must keep a written record of tips for three years, and individual workers may request access to this record. Employers must comply with the U.K. General Data Protection Regulation 2018 and the Data Protection Act 2018 when processing personal data, so responses to a request for a written record of tipping should relate only to the worker making the request and not to all workers at the business.

5. Addressing problems

• Workers can enforce their rights via the Employment Tribunals.
• Employment Tribunals will take the code into account when determining whether there has been a breach of the Tipping Act.
• Among other sanctions, Employment Tribunals will be able to make a public declaration of noncompliance and award compensation to all affected workers (not just to the claimant).

It should also be noted that, unlike most Employment Tribunal claims that must be brought within three months of the act being complained about, claims regarding how and when tips must be dealt with can be brought within 12 months of the failure to comply.

Choy Lau and Adam Grant are attorneys with Wedlake Bell in London. © 2024 Wedlake Bell. All rights reserved. Reposted with permission of Lexology.