Are you ready for the new Employment (Allocation of Tips) Act 2023?

Fantastic hospitality experiences are the result of considerable efforts from both front and back-of-house teams. Tips serve as a generous expression of customer appreciation and provide a valuable supplement to employees’ earnings.

As of 1 October 2024, the Employment (Allocation of Tips) Act 2023 will come into force. The purpose of the Act is to create a legal obligation on employers across sectors to allocate all tips, gratuities and service charges to workers without any deductions. The Act also requires employers to make sure that the distribution of tips between workers is fair. 

Whilst the majority of employers were already ensuring a fair allocation of tips as a way to reward their staff for their excellent service, it was estimated that due to unfair practice by a few, over £200million a year of tips were being withheld. 

Where tips are paid on a “more than occasional basis”, the Act requires all employers to have a written policy on how tips are dealt with, including how they are allocated between workers. This allocation must refer to a statutory code of practice which has recently been published by the Department for Business & Trade. Upon request, employers are also required to disclose the amount of tips that have been received by the business and the basis of allocation to the requesting worker. The tips must also be allocated on a timely basis.

These rules only apply where the employer receives the tips directly or influences or controls how they are treated, Therefore, if current practice is that tips are paid directly to workers in cash and kept or informally pooled by workers, the Act does not interfere with existing tipping practices. However, if, for example, tips are accepted by card, or discretionary service charges are added, the Act would apply.

As with any new piece of legislation there is a lot of detail to consider and the impact it will have on your business will depend on your current tipping practices. We would highly recommend that you discuss this further with your legal advisers who will be best placed to ensure that you are fully compliant.

If you would like advice on the taxation of your current practices, or any changes you may be considering, please speak to your usual contact or our Payroll team would be happy to help. Call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Tessa Brown & Dannielle Chapman