The Employment (Allocation of Tips) Act 2023 (“EATA”) is set to come into force on the 1st of October 2024 together with the Statutory Code of Practice (“the Code”), following an initial setback to the original enforcement date. Once the EATA becomes legally enforceable, the hospitality industry will see a dramatic shift in the way they should distribute tips, gratuities, and services charges to workers and applicable agency workers.
In particular, the EATA introduces the following “key” changes:
- Employers will be required to allocate tips, gratuities, and services charges to workers in full (e.g., without any deductions).
- Employers must ensure that the allocation of tips, gratuities and services charges is fair and transparent, considering the guidance set out in the Code.
- Employers must allocate tips, gratuities, and services charges to workers no later than the end of the month following the month in which the tip was paid by the customer, except where certain requirements are satisfied. For example, if a customer leaves a tip on 23 June, the tip must be distributed by 31 July at the latest unless a limited exemption applies.
- Employers that pay qualifying tips, gratuities, and service charges should have a written policy that sets out how those tips are dealt with (which staff should be made aware of), and employers must keep a record of all tip allocations for at least a three-year period.
Tips, gratuities, and services charges relate to any employer-received tips and/or certain worker-received tips, where such tips are controlled by the employer. Further, it concerns the actual amount paid by the customer to the hospitality employer, therefore, any deductions made to the amount paid should be disregarded by an employer in terms of complying with the EATA. For example, if an employer deducts a fee for using a credit card machine, this should not reduce the amount of the tip that should be allocated to workers. Due to the wide definition of “tips, gratuities, and services charges”, the legislation could also extend to non-monetary tips, such as gift cards/vouchers.
Generally speaking, the Code allows for tips to be distributed by employers via payroll or by a permitted tronc operator. It is worth noting that the Code outlines that allocating and distributing tips fairly does not necessarily require employers to allocate the same proportion of tips to all workers. This means that employers should consider all the factors that would justify allocating tips unevenly between workers and determine whether it would be reasonable to do so. For example, if workers work different hours during the period when the tips are received.
The Code also suggests that employers should consult
with workers to ensure that their system of allocating tips is fair, reasonable and transparent.
Failure to abide by the EATA and/or the Code will be admissible as evidence in an Employment Tribunal case, therefore, it is important that employers familiarise themselves with, and abide by, the new legislation.
If you have any questions or would like to speak to a member of our Employment Law team, then get in touch.
