What does the Act do?
The Employment (Allocation of Tips) Act 2023 ("the Act") makes it mandatory for tips to be passed on to workers without deductions (except in very limited scenarios) in workplaces where tips are received on more than an occasional and exceptional basis. Employers must ensure that tips are distributed in a fair (but not necessarily equal) and transparent manner in circumstances where the employer controls or exerts significant influence of their distribution. That includes having regard to the statutory Code of Practice on Fair and Transparent Distribution of Tips ("Code") which sets out the minimum procedure an employer must follow.
Employers must also maintain a written policy on how tips are dealt with and ensure that the policy is made available to workers. A record of all tips paid at the employer's place of business and how they are allocated and distributed between workers must be maintained, and workers have a right to request access to that record.
In addition to the Code, the Act is also supported by non-statutory guidance Distributing tips fairly - non statutory guidance. The recently published Employment Rights Bill 2024/25 ("ERB") additionally mandates that employers consult with any recognised trade union representatives, employee representative or their workers directly (where there is no such representatives) before producing or reviewing their tipping policy (a review will be required at least once every three years). A summary of views expressed during such consultation will have to be made available to all workers. This consultation provision is unlikely to come into force before 2026. However, the Code that is already in place suggests employers "should" consult so it would be good practice to do so.
An overview of the requirements of the Act
What counts as a "qualifying tip"?
A tip (including discretionary or compulsory service charge) is a payment for good service. While it may be something other than money, it must be exchangeable for money, goods, or services - for example, a casino chip. However, gifts such as a bottle of wine, which cannot be split, would not be included.
For a tip to be a "qualifying tip" the employer has to have "control or significant influence" over a tip, for example the employer directly receives the tips (in cash, by way of a service charge or via a digital payment method) and later distributes the tips to the employees. So, if a restaurant allows servers to keep tips that are handed directly to them or left on tables for them, those tips would not be included. The same applies to digital tips that go directly to, for example, delivery drivers via an app. Tips that go to the workers first but are then collected by the employer for division between employees are included.
Which workers are entitled to a share?
The Act applies to all employees and workers, including agency workers. It does not apply to the self-employed.
What counts as fair?
The Code makes clear that a fair distribution of tips is not necessarily an equal distribution of tips, there may be legitimate reasons why allocating different proportions of tips to different workers is fair. What is important is that clear and objective factors are used to determine the allocation and distribution of tips. The Code includes an illustrative list of factors that might be taken into account such as the number of hours worked during the period the tips are received, seniority or level of responsibility, type of role (front or back of house) and the customers intention.
What about employers that use independent troncs?
Although employers using an independent tronc do not have direct control of tips, they must still make sure the system has been fairly set up and follow the Code. If they have concerns about how the tronc is handling the tips, then they should address this with the tronc, and if the employer concerns are not resolved it may need to end the tronc arrangement. Failure by the employer to address concerns with the tronc arrangement may mean that the employer is regarded as having failed to comply with the Code.
When should tips be paid?
Tips must be paid to employees no later than the end of the month following the month in which the tips were received. For agency workers payment can be made via the employer or the employment agency. Tips are not included when calculating whether a worker has been paid minimum wage.
Written policy and record keeping
Employers must put in place a policy explaining how they deal with and share out tips fairly, and the policy must be available to all employees, including agency workers. This may be done by provision of a hard copy or electronically. If a tipping policy is already in place employers should review it to ensure it complies with the Act. A tipping template policy can be found in the non-statutory guidance. While currently there is no legal requirement to consult on the creation of a policy (unless it falls under, for example, the requirements of a collective agreement with a union), it would be good practice to do so, and this is encouraged by the Code. As referred to above, the requirement to consult will become mandatory when the relevant section of the ERB comes into force.
Employers must also keep records of tips for three years from when the tip was paid. This includes the amount of the tip, the amount paid to the employee or the amount the employer arranged for a troncmaster to pay. Employees are entitled to ask for sight of the records once every three months. The employer must produce the records within four weeks of the request.
Tribunal claims
The Act enables workers and eligible agency workers to bring claims against the employer if either (1) tips are not shared out fairly, or (2) the employer fails to create or make available a written tips policy or (3) fails to keep or make available records on tips.
Where the complaint is around a failure relating to how or when tips are distributed, the complaint must be made within 12 months of the failure (or the most recent failure in the event of a series of failures). This is a significantly longer period than is usual for tribunal claims. ACAS early conciliation is required before the claim can progress to a tribunal. If a complaint is successful, the financial consequences for the employer may be significant. The tribunal has the power to require the employer to revise a previous tip allocation or may make a non-binding recommendation regarding that allocation. It can also require the employer (or agent, as the case may be) to pay both the worker making the claim and other affected workers whether or not they were a party to the tribunal claim or not. Additionally, compensation of up to £5000 per worker may be awarded to compensate for financial loss.
If the complaint is around a failure relating to the keeping of records or the written policy it must usually be made within a three-month period of the failure (or the most recent failure in a series of failures), and ACAS early conciliation is required. If the complaint succeeds, the tribunal must make a declaration to that effect and may order the employer to comply with the relevant policy/record keeping requirements. It may also order the employer to pay up to £5000 to the worker making the complaint to compensate for financial loss caused by the failure of the employer.
Workers may also bring tribunal claims for an unlawful deduction from wages if they do not receive the correct amount of tips due to them.
Top tips for employers
- If they have not already done so, employers that have a tips policy in place should review it and ensure it complies with the Act. If it does not, it should be revised or replaced.
- Those that do not have a policy must create one bearing in mind the need for fair and transparent sharing.
- Consideration should be given to fair (not necessarily equal) sharing of qualifying tips.
- The basis upon which tips are shared should be clearly set out and based on objective factors.
- All affected employers must set up a record keeping process, ideally also putting in place a procedure for responding to requests for sight of those records.
- Employers that use a tronc scheme must ensure it complies with the new law.
- Ensure workers receive 100% of the tips they are entitled to (except in the limited circumstances where deductions are required such as for income tax).
- Ensure tips are paid within one month following the month in which they are received.
- Where workers (including agency workers) raise concerns regarding the allocation of tips, listen to those concerns and respond appropriately within a reasonable timescale.
