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Allocate tips fairly to avoid a hefty bill

May 12, 2023

Picture the scene. You’re in a restaurant. You’ve had a lovely meal. The bill and the card machine arrive, and question is posed: do you want to add a tip? If you do, have your ever wondered what happens to it? How do you know it gets to the staff?

I know, a lot of questions, but the answers are to be found in new legislation, the Employment (Allocation of Tips) Act 2023 (“the Act”), which has just received Royal Assent. It is expected to become law in 2024.

The purpose of the Act

In a nutshell, the Act will place a requirement on employers to fairly allocate “qualifying tips” made at a place of business no later than the end of the month following the month that the tip was made by the customer. Some further detail, particularly around clarity on fairness of the allocation will be found in a Code of Practice, which the Secretary of State will prepare following a consultation to take place in the coming months, and via secondary legislation (regulations).

Independent tronc

The Act also confirms that an employer can utilise the services of an independent tronc operator (essentially someone who administers the collection and allocation of tips for the employer) to administer and allocate tips provided that the tips are distributed fairly. Again, the question of fairness of the allocation will be dealt with by the Code of Practice.

Employers should take advice in relation to their contractual arrangements with any tronc operators to make sure that they meet their requirements.

Written policy

Where tips are handled or dealt with on more than an “occasional or exceptional basis” the employer will be required to have a written policy on how it deals with them.

At the moment, the Act provides that the policy should confirm:

· Whether the employer requires or encourages customers to pay tips, gratuities, and service charges at the place of business; and

· How the employer will ensure that all qualifying tips, gratuities, and service charges paid at, or otherwise attributable to, the place of business are dealt with…including how the employer allocates qualifying tips, gratuities, and service charges between workers at the place of business.

While some of the detail may change once the Code of Practice is issued, employers would still be wise to get ahead of the game and start preparing a policy which confirms the required information and how this issue will be dealt with in their workplace.

Records

Employers will also be required to create, keep, and maintain records as to how tips are dealt with and paid, either directly by the employer or by the independent tronc administering on the employer’s behalf, in accordance with this legislation.

Those records must be kept for three years from the date the tip is paid.

No contracting out

The Act also prevents an employer from including in a contract of employment that workers be required to pay over tips to the employer or that wages can be reduced by the amount of any tips received. Such clauses will be void.

Enforcement

A worker can make a complaint to an employment tribunal in relation to the allocation of tips (the fairness of the amount) or the timing of the payment.

In doing so, the worker can, among other remedies, seek a revision of the payment made or request a payment to the worker. Interestingly, if the tribunal revises down the amount that was originally paid to the worker, the employer is not entitled to seek repayment of that from the worker. The tribunal can also award damages (up to £5,000) for any losses sustained by any failure on the part of the employer to properly administer tips.

The Act certainly provides good protection for workers in settings, such as hospitality, where tips are regularly paid. We know that many employers will likely have their own arrangements in place to administer tips to staff but now is the time to revisit these arrangements to make sure that they will be compliant.

For those who do not have policies, practices, or arrangements in place, please get in touch and we can guide you through what will be required. Some of the practicalities around the fairness of the allocation are still to be ironed out but, in the meantime, you can put plans in place to make sure your processes fit the bill (sorry).

If you need any employment law advice, please get in touch with Blackadders’ Employment Law team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.

Nicola Burns

Nicola Burns

Director of Operations

Marketing Team

+44 1382 342217

The opinions expressed in this site are of the author(s) only and do not necessarily represent the opinions of Blackadders LLP.

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