In 2015, the Government first announced their intention to introduce new legislation around how tips and service charges, paid by customers, are distributed to employees.
Finally, on Tuesday 2nd May 2023, the new Employment (Allocation of Tips) Bill received Royal Assent.
The official date of the legislation will be confirmed later this year but the measures are expected to come into force in 2024, following a consultation and secondary legislation.
What is the Employment (Allocation of Tips) Bill?
The aim of the bill is to promote fairness and transparency to ensure employees receive the tips that they earn.
The new legislation has two main themes:
- To ensure that employees receive 100% of tips and service charge payments made by customers
- The allocation of tips and service charges to employees is dealt with fairly
This covers all employer-received amounts left by card payments and cash tips that the employer has control over in terms of distribution.
What does this mean for employers?
To make the distribution of tips as fair as possible, the new legislation has a number of points to it.
- 100% of tips and service charges must be passed to employees
- Employers cannot make deductions from any amounts left by customers.
Most employers already ensure that employees receive 100% of all tips and service charges left by customers. But some keep an amount back for covering expenses such as bank fees related to card payments or administration costs. Under the new legislation, keeping any amount back from employees, regardless of what it is used for, is unlawful.
- All tips and service charges left at a location must be distributed amongst employees at that location
Non-customer-facing workers can also receive an allocation of tips and service charges, as long as their role can be linked to the location (for example, area management roles). In other words, no sharing of monies is allowed between locations.
- All tips and service charges must be fairly allocated
A code of practice relating to the distribution of tips and service charges will be created as part of the Employment (Allocation of Tips) Act which will provide practical guidance focused on fairness
- All tips and service charges must be allocated and paid to employees no later than the end of the month following the month they were received
This means employers cannot hold onto tips and service charges from busy periods to pay to employees during the quieter periods in order to even out their earnings across the year.
- Agency Workers will become entitled to a share of tips and service charges
The share of tips and service charges must be invoiced to the agency, who will arrange to share amongst their agency workers.
- Employers will be prohibited from negotiating with employees a variation to contractual wages in return for a share of tips and service charge
Some employers agree a contracted salary amount with employees at a lower rate in return for a guaranteed share of tips and service charges. The new legislation will mean that employers will no longer be able to guarantee a share of tips in replacement of a contractual salary amount.
- An employer is expected to challenge a troncmaster if they feel the allocation is not fair, or they believe there is a risk to compliance
Although not a legislative requirement, employers are expected to remain overseers of the allocation of tips and service charges to ensure compliance with the new legislation.
We have an independent Troncmaster, what does it mean for us?
- Under the new Bill, the legislative requirements will be met automatically if there is a formal and compliant tronc arrangement in place run by an appointed troncmaster.
Policies and record-keeping
- A written policy detailing how tips and services are collected and allocated must be maintained and made available to employees when requested.
The policy can be the responsibility of the employer or the troncmaster, depending on how the allocation is dealt with.
- All records of tips and service charges received and paid to employees must be kept for a minimum of 3 years.
Employees can request access to their own record of payments for up to 2 consecutive months that have already been paid. They can also request to see the total tips and service charges left for an entire location but cannot see others' personal information or amounts received.
More information about the Employment (Allocation of Tips) Bill can be found on gov.uk.
The full report can be found here.
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