WFM UK: Employment (Allocation of Tips) Act, 2023 Code of Practice and Frequently Asked Questions

Overview

On 22nd April 2024, the Department for Business and Trade published the final version of the Code of Practice for Fair & Transparent Distribution of Tips which will accompany the statutory requirements set out in the Employment (Allocation of Tips) Act 2023.

Little has changed between the original draft Code of Practice and the updated version, despite a consultation, in which operators and professional bodies voiced many concerns around specific aspects of the act, such as the inclusion of agency workers and the 'Timely Distribution' rules.

One surprising change included in the Code of Practice is a change to the date by which the new legislation will come into Force. Implementation of the new rules has been delayed until 1st October 2024 allowing businesses more time to plan and prepare.

Code of Practice

Although little has changed between the draft and final versions of the code of practice, the final version does try to give a little more clarity and reassurance around some aspects of the draft documentation.

Digital Tipping

Due to the increased use of apps, such as TipJar, since the original legislation was created, the Code of Practice makes reference to this tipping practice by stating 'Digital Tipping, whereby a customer uses an app to directly tip members of staff, bypassing the employer, is also out of scope (of the Tipping Act)'

Non-Monetary Tips

Non-monetary tips can also be in scope of the legislation if they are received or controlled or significantly influenced by the employer. Examples of non-monetary tips include a voucher, token, casino chip or similar item that can be exchanged for money or goods.

Timely Payout

Although, during the consultation, several employers confirmed they favoured keeping tips back from busy periods to share out during quieter months, the legislation has not changed, and employers must ensure the tips are paid out by the end of the month after they were left (a tip left in July must be paid out by the end of August). The justification for this is that the practice does not align with the principle that tips should be paid promptly to workers nor the principle that tips are given freely by customers and the amount left cannot be assumed or guaranteed.

Agency Workers

Not much has changed in relation to the inclusion of agency workers, but a new statement has been added to the code that confirms where a business passes tips over to an agency, the agency is responsible for passing the money onto their workers without unauthorised deductions 

Fairness - Factors to Consider

'Hours worked' has been added to the list of factors that could be considered relating to fairness. Although not an exhaustive list, the code suggests the following:

• Type of role/worker e.g. distribution between front-of-house and backroom workers
• Basic Pay (and how workers are engaged)
• Hours worked during the period when tips were received
• Individual and/or team performance
• Seniority/level of responsibility
• Length of time served with the employer
• Customer Intention

Transparency

Employers will not be said to have met their obligations regarding fairness and transparency if employees are not aware of their entitlement in line with the tipping policy. Employers are free to distribute the policy as they want to, but they have to ensure that it is clear, accessible and available to all workers - including agency workers.

Frequently Asked Questions

• How do we pay agency workers directly if they are not an employee of ours? 
  • There are two suggested ways in which to pay agency workers - to include them in the employer's normal payroll, or via the agency themselves. If an agency worker is to be paid within the employer's normal payroll, the employer must add them to their payroll system as an employee. They must record all of the mandatory data required by HMRC, along with bank details and obtain right-to-work documentation. The payment details must be included in the FPS which is sent to HMRC before or on the pay day. There was some nervousness around the option to pass the money onto agencies to pay out, as the responsibility to ensure it was paid out correctly fell with the employer, rather than the agency themselves. The new Code of Practice has a new statement that makes it clear that agencies must pass all monies due over to the agency worker without making any unauthorised deductions 
• How long do you need to hold details of agency workers?
  • In terms of tronc allocation and distribution, records for all workers need to be held for at least 3 years. If agency workers are included in the payroll, then payroll records should be kept in line with government guidelines
• If a Troncmaster withdraws tips from the employees' fund, does the employer have to challenge?
  • The Code of Practice confirms that if a troncmaster is appointed then the framework set for the tronc's operation must be in line with the principles of the legislation. If the employer becomes aware that the troncmaster is not acting in line with the principles, they are obliged to act to address this to remain compliant. If the employer fails to act, then they will be regarded as failing to comply with the Code of Practice and can face enforcement action by way of an employment tribunal
• If tips are received on 31st July, do they still need to be paid out by 31st August?
  • Yes. Even though employers gave feedback in regards to these time frames within the consultation, no amendments or considerations have been added to the Code of Practice, so tips must be distributed to employees by the end of the month following the month in which the tips were left
• Does every employee have to have a share of tips in the respective location, regardless of whether they are involved directly in their generation?
  • No, they don't. As long as they are fair and justified, allocation rules can determine who does and doesn't qualify for a share of tips
• We have multiple locations, does the policy need to be the same across all sites?
  • No, they don't. Each location could have its own policy if required
• What type of tips are included in the legislation?
  • The determining factor in whether a tip is qualifying, as set out in the Code of Practice, is whether the employer receives or exercises control or significant influence over the distribution of tips
    • An Employee is likely to exercise control over cash tips if they tell employees how to distribute
    • An employer is likely to receive a tip paid by card or an alternative electronic method, such as a mobile app or QR code
• Will tips be subject to tax and National Insurance?
  • No amendments to the legislation around the tax or national insurance provisions for tips have been made. More information can be found here