New Code of Practice on tips
5 August 2024
The hospitality sector is poised for a significant shift with the introduction of the new Code of Practice on fair and transparent distribution of tips.
The Code is being introduced under the Employment (Allocation of Tips) Act 2023, which was granted Royal Assent on 2 May 2023, and will take effect from 1 October 2024. See our previous article for an overview of the Act.
Employers must have regard to the Code when designing and implementing their tipping policies and practices. The Code aims to ensure that tips are distributed to workers without deductions, barring certain limited exceptions such as the deduction of income tax.
The Code of Practice for tipping
The previous government published a response to its consultation on a draft statutory Code of Practice on tipping in April 2024. The final Code of Practice was published on 29 July 2024.
The Code mandates that employers pass on all tips to their workers and distribute them in a fair and transparent manner. The Code does not set out an exhaustive list of factors for employers to consider in doing so. Instead, it provides principles on what fairness is for the purposes of the Act, the areas in which businesses need to make decisions to comply, and how they should apply these principles.
Under the Code, ensuring tips are distributed fairly does not necessarily require employers to divide them evenly among all employees. Instead, employers should use transparent and objective criteria for each specific situation. The Code suggests that factors may include the type of role, pay levels, performance of individuals or groups, length of service, and the wishes of the customers. Employers should exercise care when allocating tips using these criteria to avoid indirect discrimination.
What steps should you take?
For all employers in industries where tips, gratuities and service charges are distributed, employers should maintain a written policy and a record of how tips are managed and make this accessible to all workers.
For employers, this means adapting to new standards and possibly restructuring their current tipping policies. The Code’s emphasis on transparency could also lead to a boost in employee morale and trust, potentially improving service quality and customer satisfaction.
Consequences for failing to follow the Code
A failure by employers to follow the provisions of the Code and fairly allocate and pay tips in accordance with the Employment (Allocation of Tips) Act 2023 will entitle a worker (including an eligible agency worker) to present a complaint to an employment tribunal, once they have followed the process of early conciliation with Acas. A tribunal may make a declaration of non-compliance and order payment of compensation of up to £5,000, subject to a potential uplift of 25% if the employer also fails to follow the Acas Code of Practice on Disciplinary and Grievance Procedures. A tribunal may also make an order requiring the employer to deal with qualifying tips, gratuities and service charges in accordance with the Act.
Workers may also present a separate claim to the tribunal if an employer fails to comply with its obligations to put in place a written policy and keep records of the allocation of tips. If the claim is successful, the tribunal will make a declaration of non-compliance and may order compensation of up to £5,000.
As the hospitality sector navigates these changes, it will be crucial for businesses to stay informed and compliant to maintain smooth operations.
We are here to help
Our hospitality and leisure employment specialists will be happy to advise any employers who are preparing for the new requirements, or who have other questions relating to their policies and procedures.
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Rebecca Hughes
Services
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at August 2024.