The Employment (Allocation of Tips Act) 2023 and the draft Statutory Code of Practice

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The Employment (Allocation of Tips Act) 2023 and the draft Statutory Code of Practice

The Employment (Allocation of Tips) Act 2023 (the Tips Acts) received Royal Assent in May 2023, following a widespread call for heavier regulation regarding workers and their ability to recover money for tips. Since October 2009, employers have not been able to take into account the payment of tips, gratuities and service charges when it comes to calculating a worker’s national minimum wage. However, no legislation until the Tips Act has touched upon how tips should be allocated to workers, and how transparent employers need to be with their staff.

The full measures of the Tips Act are expected to come into force in July 2024, once a Statutory Code of Practice has been consulted on and introduced in order to expand on the legislative provisions. The Department for Business and Trade issued a consultation on the draft Statutory Code of Practice on 15 December 2023, and this recently closed on 22 February 2024. Therefore, we expect that the Statutory Code of Practice will be finalised in time for the measures to come into force around July of this year.

Who will be protected by the Tips Act?

All workers, as defined by the Employment Rights Act, should be protected by the Tips Act.

Eligible’ agency workers will also be protected under the Tips Act. An agency worker will be considered eligible if they satisfy the following conditions:

  1. They are supplied by an agent to undertake work for the hirer under contractual arrangements agreed between the agent and the hirer.
  2. There is no contractual arrangement between them and the hirer directly.
  3. They will not have a contractual relationship with another party, who is a client or a customer of the worker.

Considering these criteria, most agency workers will gain protection under the Act. These conditions are in place effectively to prevent workers or employees of the hirer/self-employed consultants having a sham agency worker contract or relationship, in order to gain protection under the Act.

What are the key provisions of the Tips Act?

The main protections for eligible workers are as follows:

  1. Employers are under an obligation to ensure that all ‘tips’, including gratuities and service charges, are allocated in a fair manner to workers.
  2. Employers must make the relevant payments to their workers, in full, by no later than the end of the month following the month that the customer paid the tip.
  3. An ‘independent tronc operator’, i.e. a third party, can be used by the employer to operate the fair distribution of eligible tips.
  4. Deductions from tips, apart from those required by law such as tax and national insurance deductions, are prohibited and therefore if a worker suffers a deduction from their tips, they can make an unlawful deductions from wages claim to the Employment Tribunal. Any contractual agreement or signed form by a worker agreeing to such deductions, will be void and ineffective.
  5. A worker cannot contract out of their rights under the Tips Act.
  6. A statutory scheme will enable workers to make complaints to the Employment Tribunal if their employer has failed in their obligations under the Tips Act. They must bring a claim within 12 months of their employer’s failure under the Act, and a Tribunal may award up to £5,000 in compensation in respect of financial losses experienced by the worker, due to their employer’s breach.
  7. Employers who pay tips on more than an occasional basis must have a written policy detailing how the tips will be dealt with and allocated.

Statutory Code of Practice

The Statutory Code of Practice will aim to expand upon the Tips Act and detail how employers should meet their obligations with regard to the fair allocation of tips. The Code of Practice will not create a cause of action in itself, however workers can rely upon it as evidence should they bring a claim under the statutory scheme or bring another associated claim such as an unlawful deduction from wages claim.

The Draft Code, as published on 15 December 2023, has been split into five separate areas, covering the scope of qualifying tips and qualifying workers, factors and methods relating to fairness, transparency, addressing problems, and a glossary of terms. Of course, as the code has been subject to a consultation period, there may be amendments before a final version is issued and comes into force around July 2024.

What are my obligations as an employer?

It is clear from the introduction of this legislation that the Government are placing higher expectations on employers to ensure that tips are distributed, and specifically in a fair and transparent manner. This will aim to avoid practices where hospitality businesses withhold tips and fail to distribute them to their staff.

Before the legislation is introduced, businesses should review their current practices regarding the allocation of tips and consider whether changes need to be made, and whether a specific policy needs to be drafted and distributed to their workforce. If accurate records of tips and their allocation to workers are not already kept, then companies should be updating their internal recording systems to ensure that data is stored and available, should a Tribunal claim be raised in the future.

As always, whilst statutory schemes contain causes of actions in themselves, the greater concern for employers are the associated claims, where the cap on potential compensation is much higher. For example, claims could arise where one worker is paid their tips and another isn’t, which they cite is discriminatory in nature and relates to one of the 9 protected characteristics. Claims could also arise where an employee ‘whistleblows’ in relation to their employer’s practices linked to the allocation of tips, and then brings either a detriment or dismissal claim following the raising of their protected disclosure. As always, employers faced with such scenarios should always seek legal advice before proceeding to take action with their employees, which could result in litigation.

This blog has been co-authored by Marcus Difelice and Emma Salkin.

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