Employment (Allocation of Tips) Act 2023: how can your business stay compliant?

As of 1 October 2024, millions of workers across the UK will be entitled to keep 100% of their tips, gratuities, and service charges under the new Employment (Allocation of Tips) Act 2023. 

Before the introduction of the act, many workers in the UK weren’t receiving their fair share of tips or not receiving any tips at all, despite earning them. There was little legislation governing how tips should be shared or distributed among the workforce.

The new legislation is designed to protect employees from exploitative practices, such as employers withholding tips or charging administration fees. It ensures that tips are fairly distributed among eligible workers.

This article provides an overview of what the new act entails and how businesses can ensure they remain compliant with the new legislation.

What does the Employment (Allocation of Tips) Act 2023 mean for employers?

The Employment (Allocation of Tips) Act 2023, which came into effect on 1 October 2024, was introduced as a private member’s bill with the aim of improving the financial stability of tipped workers. The government estimates that the act will boost wages by approximately £200 million, putting more money into the pockets of the UK’s workforce.

The act distinguishes between two types of tips:

• Employer-received tips: these are tips paid directly to the employer, usually via credit or debit card, or through a third-party system arranged by the employer. Such tips must be distributed to employees in accordance with the new legislation.
• Worker-received tips: these are tips given directly to the worker by the customer, typically in cash. These tips do not fall under the act unless the employer controls or manages them in connection with other employees.

In simple terms, all tips received within a business, whether in cash or by card, are covered by the act, unless the tip is handed directly to the worker by the customer and the employer has no control over it.

Who is protected under the act?

The Employment (Allocation of Tips) Act 2023 applies to workers, including eligible agency workers, who work in businesses where tips are received. Employees covered by the act are entitled to:

• Protection from unlawful deductions from their tips.
• A fair allocation of tips.
• Payment of their allocated tips no later than the end of the month following the month in which the tip was received.
• The right to file a complaint with an Employment Tribunal if their employer fails to comply with the regulations, within 12 months of the violation.

How can your business stay compliant?

With the introduction of the Employment (Allocation of Tips) Act 2023, businesses in the UK must adjust their policies and procedures to ensure compliance. By implementing fair and transparent tip-handling practices and adhering to the statutory requirements, employers can avoid potential disputes and foster a more equitable working environment for their staff.

To comply with the new regulations, businesses where tips are received must meet several obligations. These include:

1. Written policy: employers must create or update a written policy outlining how tips are handled in compliance with the Statutory Code of Practice for fair distribution.
2. Fair and transparent tip handling: employers must handle tips fairly and transparently, ensuring that employees understand the distribution process.
3. Timely payments: employers must ensure that employees receive their tips no later than the end of the month following the month in which the customer paid the tip.
4. Record-keeping: employers must keep clear records of how tips have been handled. This includes documenting the total amount of tips received by the employer, as well as the amounts allocated to individual employees or groups of employees.
5. Providing records upon request: if an employee requests access to tip records, the employer must provide copies of the relevant documentation.
6. Fair distribution: employers must distribute the total amount of tips covered by the act fairly among workers, including eligible agency workers.

Are you ready for the changes? If you require support in implementing or preparing a new tip handling policy, please contact our employment team.