New rules on distributing tips: Understanding the Employment (Allocation of Tips) Act 2023

On 1 October 2024, the Employment (Allocation of Tips) Act 2023 came into effect, introducing significant changes to how tips are managed and distributed in the hospitality industry. 

This new legislation aims to ensure that tips, gratuities, and service charges are all fairly and transparently distributed amongst employees. This should address longstanding concerns about their distribution. 

Key Changes to be introduced by the Act:

1. Fair Distribution: Employers must distribute all tips, gratuities, and service charges fairly amongst employees. This should consider both cash and card-based tips. A code of practice will be presented to guide the process. 
2. No Deductions: Employers are prohibited from making any deductions from tips, including administrative fees. The only exceptions are those required by law (e.g. taxes). 
3. Transparency: Employers must clearly communicate their process tipping policies to employees and customers. 
4. Record-Keeping: Employers are required to keep detailed records of all tips received and how they have been distributed for a period of three years. These records will be accessible to employees upon request. 
5. Written Policy: A written policy outlining the distribution of tips must be in place and accessible to all employees upon request. 
6. Service Charges: Any service charges added to bills must be treated as tips and distributed under the same rules as other gratuities. 

Key impact on Employers:

Employers will need to update their practices to comply with the new Act.

Here are the key impacts, with some suggestions for procedures that affected employers will need to consider:

1. Review and Update Tipping Policies: Employers will need to review their current tipping policies and update to ensure it conforms with the new rules. They will need to be clear and fair and communicate this to all employees. 
2. Implement Transparent Systems: Employers should implement transparent systems for tracking and distributing tips. This might involve using software solutions that automatically record and allocate tips based on predefined criteria.  Our digital team would be happy to review your current Point of Sale system and advise on whether any improvements could be made to assist with the tracking and distribution of tips.
3. Employee Training: Training sessions should be held to inform employees about the new rules and how tips will be managed. This ensures everyone is aware of their rights and the procedures in place. 
4. Maintain Accurate Records: Employers must establish robust record-keeping practices to document all tips received and distributed. These records should be maintained for at least three years and be readily accessible for inspection by employees or regulatory bodies. 
5. Communicate with Customers: Businesses should clearly communicate tipping policies to customers. This could be done through notices on menus or at the point of sale. This transparency helps manage customer expectations and ensures they understand how their tips will be used. 

By implementing these procedures, employers not only comply with the new rules but also foster a fairer and more transparent working environment. This should help to enhance employee satisfaction and trust, ultimately benefiting the overall business.

If you need any advice with reviewing and implementing the new changes, please feel free to get in touch at enquiries@teamjs.co.uk and we will be happy to help you.