The final stage on the rules for tipping and gratuities

New rules to ensure fairness and transparency around handling tips and gratuities will soon go live for hospitality and other service sector businesses.  

These are designed to ensure an even-handed approach in situations where the employer has control over how tips are distributed. 

From 1^st July 2024, a statutory code of practice will be in place, providing businesses and staff with guidance on how distribution of tips should be managed.  It follows on from the Employment (Allocation of Tips) Act 2023 which was put in place to make it unlawful for employers to withhold tips and service charges from staff. Any employers operating a business where gratuities and tipping takes place must match up when the code of conduct comes into effect in July.

The 2023 legislation was introduced to control tipping in the workplace and overcome situations where employers make deductions from tips or withhold service charges, with many so-called ‘administration’ charges levied where tips are given through card payments. 

Previously, businesses often made deductions for the transaction fees on tips given via card payment, before passing cash on to workers.  Now, the whole sum is required to be passed on, without deduction.

The Code of Practice is intended to facilitate fairness and transparency and businesses will be required to:

• distribute tips to staff within one month of the end of the month in which the customer paid the tip; and
• have a written policy on the allocation of tips and maintain records of the distribution unless they receive tips only occasionally and exceptionally.

Employers need to be aware that the fair distribution between workers includes all workers, except the self-employed.  So, where a business has a mixture of permanent staff, directly recruited staff, agency workers and zero hours contract workers in the same location, all of them must be included in the distribution of tips, however that is determined.

The decision on how to distribute is open to employers, so it does not have to be the exact same proportion for all workers - for example, front of house may be treated differently to back of house - but it must be fair and reasonable and clearly set out in a written policy that workers can access.

Alongside, businesses may need a reminder that tips cannot count towards the national minimum wage.  The National Minimum Wage Regulations (NMW) apply to any eligible worker, whether they are paid by the hour or some other basis, and calculations must be made to check if the equivalent hourly rate is at the right amount.  Any gratuities paid at work must be on top of the NMW.

Also, some restaurants may have what is known as a tronc scheme.  This is effectively a self-administered scheme for staff, with a troncmaster appointed to distribute tips between staff.  The employer is not able to influence the operation of the scheme or how tips are shared.  

This is not legal advice; it is intended to provide information of general interest about current legal issues.