Allocation of Tips | Withholding Tips from Employees is Now Illegal
As the result of the Employment (Allocation of Tips) Act 2023, which came into force on 1st October 2024, an estimated two million workers will benefit, seeing their incomes boosted by over two hundred million pounds in tips. It is intended that these funds which were previously withheld by their employers, will now be shared fairly among them.
The Employment (Allocation of Tips) Act 2023 (‘the Act’) was passed as the result of the belief that tips, gratuities and service charges should benefit those who, by their hard work, have provided the services rather than employers. Prior to the Act, many hospitality workers, who relied upon tips to ‘top up’ their pay, were left powerless by employers who retained them for their own benefit.
Nazaqat Maqsoom of KANGS comments upon the new legislation.
The New Legislation | Employment (Allocation of Tips) Act 2023
Section 2 of the Act: How tips etc must be dealt with.
The Employment (Allocation of Tips) Act 2023 sets out clear guidelines on the handling of tips, gratuities, and service charges under Section 2. Employers are required to ensure that all qualifying tips and service charges received at a place of business are distributed fairly among the workers at that location.
Where a worker is allocated an amount of employer-received tips, that amount is payable to the worker by the employer. Furthermore, in determining a fair distribution of tips and service charges, employers must consider the relevant codes of practice to ensure compliance with established standards.
Sections 27P & 27Q Issue of code of practice
The Secretary of State may issue a code of practice for the purpose of promoting fairness and transparency in the distribution of qualifying tips, gratuities and service charges.
If wishing to propose a code of practice, the Secretary of State must:
- consult ACAS,
- publish a draft of the proposed code,
- consider any representations made and modify as appropriate.
Tips, Gratuities and Service charges
A ‘tip’ is a payment made on top of the basic charge and, usually, may be made by way of a:
- mandatory service charge,
- discretionary service charge,
- gratuity paid to the employer as part of a cheque, credit or debit card payment,
- gratuity paid into a staff box, or similar,
- gratuity paid directly to an employee.
The Employment (Allocation of Tips) Act 2023 does not change how these payments should be assessed for tax and National Insurance contributions and they must all be accounted for to HMRC by either the employer or the employee in a manner depending on the nature of their receipt.
Consequences of Failure to Comply
By virtue of section 27K of the Act, a worker may present a complaint to an employment tribunal that the employer has failed to correctly deal with the prescribed manner and timing of the payment of tips.
Section 27L provides that, if the tribunal upholds the complaint, it may:
- make an order requiring the employer to deal with the tips,
- require the employer to revise an allocation of tips,
- make a recommendation regarding the allocation,
- require the employer to make a payment to one or more workers, including anyone who is not the complainant.
Section 27m enables the tribunal to order the employer to pay compensation, not exceeding £5,000, to the complainant for any financial loss sustained which is attributable to the matter complained of.
Official Comment
At the time of the passing of the Bill:
Business and Trade Minister Kevin Hollinrake said:
"Whether you are pulling pints or delivering a pizza, this new law will ensure that staff receive a fair day’s pay for a fair day’s work – and it means customers can be confident their money is going to those who deserve it."
Dean Russell, Conservative MP for Watford, said:
"Hard working people working in hospitality in Watford and across the country will be able to retain their tips, knowing that they will now have a fair deal.
I have always had reservations that some employers kept tips which were earnt by their staff. This new law will stop this immediately and will ensure that the tips are given to the individual staff member, or team."
How Can We Assist?
Employers who fail to properly distribute tips to their staff clearly face the potential of a dissatisfied work force, reputational damage and the time and cost of defending litigation before an Employment Tribunal.
Additionally, such a dispute may lead to HMRC conducting an investigation into employer’s records to ensure compliance with PAYE, National Insurance payments and the National Minimum Wage.
Failure to comply with all statutory requirements may lead to the imposition of substantial financial penalties.
The team at KANGS is accustomed to advising individuals and companies, whether large or small, upon their statutory obligations to employees whether financial, contractual or relating to Health and Safety requirements.
Our team, on a daily basis, handles HMRC disputes of every nature, assisting both individuals and businesses resolve such issues.
If we can be of assistance, our team would be delighted to hear from you.
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
Top ranked by leading legal directories Chambers UK and the Legal 500.
