Does your business operate in the hospitality, leisure, or service industry where tips, gratuities and service charges are regularly received by employees? If so, have you heard about the recent changes in legislation to regulate how these are fairly distributed to your staff?
This topic has sparked considerable discussion particularly regarding fairness and transparency for workers. Below, we’ve outlined the key aspects of the legislation.
What is the allocation of tips policy?
In the UK, changes to employment and the allocation of tips, The Employment Allocation of Tips Act 2023 was introduced from 1 October 2024 and aims to ensure that tips, gratuities and service charges given to workers are distributed fairly. Here are some key points about the legislation:
- Mandatory Passing of Tips: Employers are required to pass on tips and service charges to employees without making deductions, ensuring that workers receive the full amount intended for them.
- Clarity on Distribution: The Act requires businesses to have clear policies regarding how tips are distributed among staff, promoting transparency within businesses.
- Employee Rights: Workers now have the right to inquire about their employer’s tipping policies and how tips are allocated, empowering them to seek clarification and accountability.
- Protection Against Retaliation: The legislation includes protections for employees who raise concerns about tips or reporting practices, safeguarding them from potential retaliation.
- Enforcement Mechanisms: The Act establishes mechanisms for employees to raise grievances regarding unfair tip distribution, with penalties for employers who fail to comply.
What Employers Need to Know
There are a couple of areas employer’s need to be aware of and to implement, being:
- 100% of tips must be paid out by the end of the month following the month they were collected and without deduction other than for PAYE and NIC.
- Employers must keep a written record of how tips are allocated.
- Employers must have a policy setting out how tips will be allocated.
- Workers have rights to make a request for information on employers’ tipping record.
- Employees can take their employer to an employment tribunal if rules are broken.
The Act aims to improve the earnings of hospitality and service workers, promoting fairness in how tips are handled.
HMRC have updated their guidance on this which can be found here.
At AMR Bookkeeping Solutions we work with all types of industries, including hospitality and our friendly, knowledgeable team are on hand to help answer any payroll queries you may have.
