New rules on tips are expected in October – are you prepared?

Whatever the nature of your business, if your staff receive tips then you should be aware of changes that are expected to come into force on 1 October pending non-statutory guidance which is still being produced. The aim of the new rules is to introduce greater fairness and transparency about tips in workplaces and, in particular, to make sure that tips are distributed amongst the people that customers wished to reward for good service.

The rules take the form of a new Code of Practice which applies to all tips which are covered by the Employment (Allocation of Tips) Act 2023. Whether or not you actually need to change what you do will depend on your current arrangements, but you will definitely need to be able to show that you have a formal policy in place showing how tips are handled and that you follow it.

Cash tips that are given straight to an employee and are not handled at all by the employer are not subject to scrutiny, but any ‘employer-controlled’ tips will fall under the scope of the rules. This is likely to affect many restaurants, hotels, taxi firms, hairdressers, and nail bars, amongst others. The rules do not apply where those being tipped are self-employed contractors.

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The new regime doesn’t require all employers to adopt the same approach to how tips (which for this purpose also includes all other forms of gratuities) are divided up. It does require thought to be given to what is fair and then for this to be applied consistently.  Some of the factors that an employer might consider include: the type of role carried out by an employee; their basic pay; level of responsibility; how long they have been with the organisation; whether it is individual or team performance that is being rewarded; and what the customer intended when leaving a tip.

Employers should be careful to avoid unlawful discrimination of any kind when establishing their tips policy and should also consult broadly with staff before implementing a policy to ensure that it is generally perceived to be fair. The written policy needs to explain how tips are collected, allocated and distributed and to show that an employer has procedures in place to ensure that all gratuities are handled fairly and transparently in line with the legislation. All employees should receive a copy of the policy document; this can be done in hard copy or electronically.

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Employers then need to keep a tipping record which shows what has been paid and to whom. Workers have a right to ask to see this and potentially to challenge it through the usual employment law processes if there are inconsistencies.  Records need to be retained for three years, beginning with the date on which the tip was paid, and the data generally needs to be handled in line with data protection legislation.

Carefully thought through and communicated policies, and adherence to them, is key.  If you would like individual advice about what might be appropriate for your business, please contact the Employment Law Team on ELS@fraserdawbarns.com, or ring your nearest office:

Wisbech: 01945 461456

March: 01354 602880

King’s Lynn: 01553 666600

Ely: 01353 383483
Downham Market: 01366 383171