Paying staff tips: government publishes draft guidance

The Employment (Allocation of Tips) Act 2023, is expected to come into force 1 July 2024, which is a bit later than originally suggested. The Act will create a legal obligation on employers to allocate all tips, gratuities and service charges to workers, without any deductions, and to ensure these are distributed fairly between workers. You can read more about the changes here.

To help employers and workers understand the new law, the government has published a Draft code of practice on fair and transparent distribution of tips (the Code). Once approved, the Code will provide guidance to employers to help them to understand and follow the new rules on tips. It applies to all sectors where tips are paid, but will be particularly important in the hospitality sector.

The Code is under consultation and could be tweaked slightly. As currently drafted it explains that: 

• The legislation applies to all workers, including permanent employees, agency staff, casual workers, and those on zero-hours contracts.
• Fair allocation and distribution of tips doesn’t necessarily mean that employers must allocate the same proportion of tips to all workers. Legitimate reasons may exist for allocating different amounts.
• There should be a clear and objective mechanism for distributing tips which should be fair and reasonable, taking into account the circumstances and nature of the employer’s business. Various factors can be considered, such as the type of role, the amount of basic pay, individual and/or team performance, seniority/level of responsibility, length of service, and customer intention. Whatever approach is used must not discriminate against anyone with a protected characteristic. 
• Measures that the employer puts in place must be transparent and must include a written tipping policy that is regularly maintained and made available to all staff. Accurate tipping records must also be kept for a period of three years.
• Employers should consult with their staff and seek broad agreement on how tips are distributed and regularly review this approach to make sure that it is working effectively. 

The consultation process has already started and will run for a period of 10 weeks which will end 22 February 2024. You can access the consultation documents and submit your responses here.

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