Legal: Withholding tips from workers

A new law making it illegal for premises to withhold gratuities from workers will come into force in May 2024. 

Described as the biggest legislation shake-up for the industry in recent history, the Employment (Allocation of Tips) Act 2023 received Royal Assent in May 2023, making it illegal for employers to withhold tips from staff.

The government has estimated that more than £200m a year will go back into the pockets of workers by retaining tips that would have otherwise been deducted. 

Key information for operators

Under the new legislation, employers will be required to share all tips, gratuities and service charges fairly among staff without deductions. A new statutory code of practice is expected to be published imminently, which will clarify what is a fair allocation of tips. 

The new regime will require employers to hold a record of the allocation and distribution of tips for three years and workers will be able to request copies, which will have to be provided within four weeks of the request being made. 

Employers will also need to develop and implement a written policy setting out the mechanism for allocating tips and distributing them in a fair, transparent and consistent way. 

Risks for businesses that get it wrong

Employers found to not be compliant with the new legislation risk facing claims in the Employment Tribunal. Indeed, workers and agency workers will be able to bring claims against employers 12 months after they allegedly failed to comply with the new rules, which could have significant financial and reputational implications for businesses. 

Non-compliance with the new regulation could have detrimental impacts on customer loyalty and employee attraction and retention. Staff today have higher expectations from employers in terms of transparency and fairness. What’s more, disgruntled employers have the option of making their grievances heard on very public forums on social media, which can have a devastating impact on a premises brand. At a time when the industry is already facing issues with staff shortages, it’s more important than ever for businesses to ensure they are complying with required legislation. 

Next steps – advice for employers 

Premises need to act now and consider whether they will be compliant with the new legislation when it goes live in 2024. Although the code of practice will provide more practical guidance for employers, there are several things businesses can do now. For example, consider engaging with staff at an early stage to explain the changes and look to prepare policy and educate managers and supervisors.

It’s also important for premises to know that the deductions for processing tip allocation will no longer be permitted from May 2024. If using a third party to process tips, then the business will need to fund those deductions. In addition, pooling money across the sites will have to stop, so early engagement with staff about these practices is key. Non-customer-facing workers, such as kitchen staff, can be included in the allocation if they contribute to the overall customer experience. 

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