From July 2024, a statutory code of practice will provide businesses and staff with guidance on managing tip distribution. This follows the Employment (Allocation of Tips) Act 2023, which made it unlawful for employers to withhold tips and service charges from staff.
Partner and head of employment Karen Cole stated:
“This code is the final stage in tightening up the rules around how tips are handled in the workplace. Any employers operating a business where gratuities and tipping occur must adhere to the code and review their policies and practices to ensure they comply with the new rules.”
The 2023 legislation aims to control workplace tipping and prevent employers from making deductions or withholding service charges under the guise of ‘administration’ fees, especially for card payments. Previously, businesses often deducted transaction fees from tips given via card payment before passing the remaining cash to workers. Now, the entire sum must be passed on without deduction.
The code of practice is intended to facilitate fairness and transparency. Businesses will be required to:
- distribute tips to staff by the end of the month following the month in which the customer paid the tip; and
- have a written policy on the allocation of tips and maintain records of the distribution unless they receive gratuities only occasionally and exceptionally.
Karen added:
“Employers need to ensure fair distribution among all workers, except the self-employed. This includes permanent staff, directly recruited staff, agency workers, and zero-hours contract workers in the same location. The distribution does not have to be in the same proportion for all workers; for example, front-of-house staff may be treated differently than back-of-house staff. However, it must be fair, reasonable, and clearly set out in a written policy that workers can access.
Additionally, businesses should remember that tips cannot count towards the national minimum wage.”
The National Minimum Wage Regulations apply to any eligible worker, whether paid by the hour or on another basis. Calculations must ensure the equivalent hourly rate meets the required amount. Any gratuities received must be in addition to the national minimum wage.
Top Tip
Act now and ensure your business complies with the new rules.
Contact Karen Cole today for expert advice on updating your policies and practices. Ensure a smooth transition and avoid potential penalties. Call Karen on 020 7299 6909 for more information.
Note: This article is not legal advice; it provides information of general interest about current legal issues.