The Tipping Act 2024 – what are the new obligations and who is caught by them?

With the Employment (Allocation of Tips) Act 2023 (the 'Act') coming into force on 1 October 2024, businesses operating in industries where tips, gratuities or services charges ('tips') are the norm should be taking steps to respond to the new legislation.

What is the new Act? 

The Act was devised in an effort to prevent potentially exploitative practices by employers, such as imposing tip-related 'handling' or 'administration' fees, and to ensure that tips are shared fairly between eligible workers.  It places obligations on businesses with respect to how and when they handle tips, and gives workers (including some agency workers) a direct legal remedy if they fail in these obligations. 

What tips count?

The Act covers two categories of tips. 

An employer-received tip is one which is paid to the employer (or an associated person), typically but not exclusively using a credit or debit card or one paid into the account of a third-party entity under an arrangement with the employer. All employer-received tips must be distributed in accordance with the Act. Tronc systems which collect tips from customers and divide and distribute them to workers in line with the employer's instructions are regarded as 'employer received'.

A worker-received tip is a tip paid by the customer directly to the worker and not to (or passed on to) the employer or their associated person. Typically, this type of tip is paid in cash and does not have to be distributed in accordance with the Act unless it is subject to the employer's control or connected with any other worker-received tips that are subject to the employer's control. Tips are subject to the employer's control if, for example, there is a requirement or pressure to share cash tips with other workers.

In other words, every tip paid within a business (whether by cash or card) is covered unless it is handed directly to the worker by the customer and the employer allows them to keep it in full.

Who is protected?

The Act provides rights to workers, including eligible agency workers (as defined in the Act), who work in businesses where tips are received. Workers are entitled under the Act:

• to a fair allocation of tips;
• to receive payment of their allocation of tips in full no later than the end of the month following the month in which the customer paid the tip;
• not to have unlawful deductions made from tips;
• to complain to an employment tribunal within 12 months of the failure to comply if these rights are not observed. A tribunal will take into account the provisions of the Statutory Code of Practice on distributing tips fairly in determining complaints. If it upholds the complaint it may order relevant tips payments to be made and award additional compensation of up to £5,000 for financial loss suffered by the individual.

What must businesses do?

The main obligations fall on employers in businesses where tips are received. They must:

• have a written policy on how they deal with tips that complies with the Statutory Code of Practice on distributing tips fairly (unless tips are occasional and exceptional);
• handle tips fairly and transparently in a manner in which workers can understand;
• allocate the total amount of tips covered by the Act fairly amongst workers, including eligible agency workers (arrangements may be made for agency workers to be paid via the agency);
• make payment to workers no later than the end of the month following the month in which the customer paid the tip;
• keep clear records (for at least three years) of how tips have been dealt with, which includes details of the amount of all tips received by the employer at a given place of business and the amount allocated to workers individually and collectively; and
• provide copies of certain records to workers on request.

What about employment businesses?

Employment businesses who supply workers to affected employers should update their terms and conditions to ensure that the obligations on both them and hirers, as set out in the Act, are properly reflected and that the terms contain adequate safeguards for the employment business if payment of tips from employers to agency workers is going to be routed through them. Workers may bring employment tribunal claims against employment businesses that have not met their obligations, for example by not passing on tips that they have received from their client businesses and they may be required to pay compensation of up to £5000 as well as restoring unpaid tips.