New law on tips to generate £200m for hospitality workers

After years of campaigning, hospitality workers are set to benefit from a new tipping law. The Employment (Allocations of Tips) Act 2023 came into effect on 1 October 2024 and is predicted to return £200m to the pockets of workers each year.

The new Allocation of Tips law aims to rectify the long-term issue of employers deducting service charges from tips and gratuities, which has often left employees with less than what customers believe they are receiving.

This new legislation is expected to benefit approximately 2 million workers in the UK who work in pubs, cafes, and restaurants, for whom tips make up a large portion of their take home pay.

When the new law was introduced last year, UK Hospitality Chief Executive, Kate Nicholls, commented:

We’re pleased to support this new piece of legislation as it comes into law today and look forward to working with Government and other stakeholders on a code of practice that ensures a fair distribution of gratuities amongst all who contribute to providing great hospitality.

What does the Employment (Allocation of Tips) Bill 2023 cover?

The new legislation includes:

• A requirement that means employers will have to pass 100% of customer tips to staff, with the only deductions coming from those required by tax law
• A statutory Code of Practice on Tipping setting out the principles of fairness and transparency that employers must follow, which is accompanied by additional non-statutory guidance
• A requirement that employers who pay tips on more than an occasional or exceptional basis must have a mandatory written policy on tips and gratuities – including how to distribute them fairly – and make that policy available to workers. Employers will also be required to keep a record of how tips are distributed for three years from the date received
• A right for employees to request information on their employer’s tipping record over a period during which they had worked for the employer within the last three years
• Requirements for tips that are distributed via a tronc system to be paid no later than the end of the month following the month in which they were first paid by a customer
• A right for agency employees to also benefit from the Allocation of Tips Act

Are there any penalties for failing to comply with the new tipping rules?

Workers have a right to bring claims in an Employment Tribunal where their employer has failed to comply with the requirements of the new legislation. If a worker’s claim is successful, an Employment Tribunal can order an employer to:

• revise the allocation of tips (and make a non-binding recommendation as to the appropriate allocation)
• make a payment to the worker or other workers
• pay compensation to the worker of up to £5,000 for any financial loss suffered because of the employer’s breach of the legislation

Workers have up to 12 months from the date of the employer’s failure to comply to bring claims relating to breach of the new legislation in the Employment Tribunal. In addition to specific claims under the new legislation, a failure to allocate tips lawfully could amount to an unlawful deduction from wages, for which workers can also make claims in an Employment Tribunal.

It’s important that businesses take note of the new tipping rules to minimise the legal and financial risks of non-compliance, and put in place systems and procedures to ensure tips are allocated lawfully.