How should tips be split? Understanding the Tipping Act 2023

• Employment

The allocation of tips within the hospitality sector has long been a contentious issue amongst employers and their staff, especially surrounding the fairness and transparency of tip distribution. Subsequently, the UK government has introduced the Employment (Allocation of Tips) Act 2023  (Tipping Act 2023) to address some of these concerns. Alongside the Tipping Act 2023, the government has also published a Draft code of practice on fair and transparent distribution of tips (Code).

The Code provides that the purpose of the Tipping Act 2023 is: “to ensure the fair and transparent allocation of all tips, gratuities and service charges… The desired outcome of the Tipping Act is to improve fairness for workers by ensuring that the tips consumers leave in recognition of good service and hard work are going to the workers as intended. The Act aims to increase fairness in tipping practices and create a level playing field for employers who already allocate all tips to workers by ensuring that all employers follow the same rules”.

Initially, the Tipping Act was meant to come into effect on 1^st July 2024 but has now been postponed until 1^st October 2024.

In summary, the Tipping Act 2023, introduces the following:

1. Passing of tips: Employers are required to pass 100% of qualifying tips, gratuities, and service charges to their employees and must no longer retain any portion of the tips. A “qualifying tip” includes money, gratuities and service charges. This includes tips that are received by the employer, subject to the employer’s control or connected to those received by the worker that are then subject to the employer’s control, e.g. when workers receive tips in cash and are required to hand over the tip to their employer for the employer to distribute amongst all staff. The Tipping Act 2023 also provides that a qualifying tip includes the form of a “voucher, stamp, token or similar item” which is of a fixed monetary value or “capable of being exchanged (whether on its own or together with other vouchers, stamps, tokens or items, and whether immediately or only after a time) for money, goods or services (or for any combination of two or more of those things).”
2. Scope: The Code confirms that not all tips are under the scope of the Tipping Act 2023. For example, if a worker receives and keeps a cash tip, with no employer control or involvement, the tip is out of scope for the Tipping Act 2023.
3. Fair and transparent distribution: Tips must be distributed fairly and transparently, and employers must develop a clear policy for tip distribution. The Code confirms that each individual employer can apply their own practices and policy as there will not be a one-size-fits-all across the board. The Code also confirms that the Tipping Act 2023 does not necessarily require employers to split the qualifying tips equally to all workers as there “may be legitimate reasons why employers choose to allocate different workers different proportions of tip”. However, the distribution of tips must be fair and reasonable.
4. Considerations: The Code provides a non-exhaustive list of factors an employer may consider when determining how to allocate tips fairly and reasonably:
   1. type of role or work for example distribution between front-of-house and back-room workers
   2. basic pay (and how workers are engaged)
   3. individual and/or team performance
   4. seniority or level of responsibility
   5. length of time served with the employer
   6. customer intention
5. Written records: Employers are required to keep written records of the tips received and how they are distributed and these records must be available to employees upon request. Records must be retained for 3 years in accordance with section 27J of the Employment Rights Act 1996 (ERA 1996).
6. Tronc system regulation: Some employers already use a Tronc system to distribute tips amongst workers. A tronc operator, also known as a troncmaster, is an individual who has been allocated the task of distributing tips independently and fairly amongst workers. Section 27F ERA 1996 provides that if a tronc system is used, the troncmaster must be independent of the employer ensuring impartiality.
7. Protection against deductions: The law prohibits employers from making deductions from tips for purposes such as credit card fees or administrative costs, ensuring that employees receive the full amount they are entitled to. The only deductions that can be made to the qualifying tips are those deductions which would usually be made in the form of tax and national insurance contributions.

Employer obligations 

Whilst the implementation of the Tipping Act 2023 has been postponed to 1^st October 2024, it is recommended that employers start considering how they will implement the new legislation now, especially with the summer holidays coming.

Employers need to ensure that their tipping policies comply with the new regulations. If possible, it is advised that employers try to agree on the new policy with their workers to show that it is considered to be fair and reasonable by their staff.

Employers should be prepared to start collecting and recording data regarding tips and their distribution. Access to this data and the retention of such data should also be included within any tipping policy or dealt with in their data retention and processing policies.

If an employer intends on introducing a troncmaster, consideration should be given to who is most suitable for the position and how their decisions will be monitored to ensure fairness and impartiality whilst maintaining independence from their employer.

This article should demonstrate the intricacies involved in dealing with and splitting tips fairly and transparently. If you are an employer looking for additional guidance related to the Tipping Act 2023, or any other area of employment law, such as seasonal workers and employment contracts, please contact GA’s experienced employment solicitors in Plymouth today.

You can contact me directly by emailing kayleigh.arthurs@GAsolicitors.com or call 01752 203500.

Do also read our recent article on the holiday pay changes 2024 regarding irregular hours workers.

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