With the Festive season approaching, hospitality and service industry businesses are being warned that they could face fines and the prospect of an employment tribunal if they do not comply with The Employment (Allocation of Tips) Act 2023.
The Act, which impacts more than two million staff working in businesses such as restaurants, bars, retail shops, hairdressers, taxi firms and beauty parlours, requires employers to pass on all tips, gratuities and service charges without deductions.
Specialists at UK top 10 accountancy firm Azets have issued the warning ahead of proposed changes due to come into force late next year which will tighten legislation even further.
Julie Gunnell, associate director of growth payroll at Azets, said: “The Act has been in law and if employers do not pass on 100% of all tips, staff can bring a claim to an employment tribunal which could result in fines or compensation.”
The Government has confirmed measures to enhance current tips laws will come into effect in October 2026 if the Employment Rights Bill becomes law. The proposed changes will:
- Require employers to consult with workers or their representatives before creating a tipping policy, meaning that most employers will have to revisit their current tipping policy.
- Require employers to update their tipping policy every three years.
Hannah Jane Dobbie, head of HR consultancy at Azets, added: “We know that the vast majority of employers are fully supportive of the Tipping Act, not least because it properly rewards dedicated, deserving and often low paid staff, but also because it builds trust with customers who are more likely to tip if they can be sure of its ultimate destination.
“When it comes to the Tipping Act, employers should use a clear and objective set of factors to determine the allocation and distribution and ensure that they give due consideration to all workers involved in providing service to customers, including temporary, zero hour and agency workers to avoid discrimination, but not the genuinely self-employed.
“Record-keeping is also a requirement, and the employer must create a record of how every qualifying tip has been dealt with, detailing all qualifying tips received by the employer at the place of business, and the amount allocated to each worker. Records must be kept for a period of three years beginning with the date on which the qualifying tip was paid.
“Workers can make a written request to view their employer’s tipping record for a period dating back up to three years, provided they worked for the employer for the full duration of the requested period. They can only make one request in any three-month period, and an employer must provide its tipping record within four weeks.”
The Government has produced a Code of Practice on the Tipping Act which is available as a free resource. It provides overarching principles on what fairness is for the purposes of the law, the areas in which employers need to make decisions to comply with their duties, and how they should apply these principles in their specific places of business.
Key points include guidance on qualifying tips, employer-received tips, worker-received tips, digital tipping, ‘out-of-scope’ tipping, non-monetary tips, how a place of business is defined, the fair (not necessarily equal) allocation of tips, and timescales for the payment of tips.
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