The implementation of the Employment (Allocation of Tips) Act 2023, which was first brought forward back in 2021 and received Royal Assent in May last year, means it is now unlawful for businesses to hold back service charges from their employees, ensuring staff receive all of the tips they have earned.
If an employer breaks the law and retains tips, a worker will be able to bring a claim to an employment tribunal. Employers in the wrong could be made to pay fines or compensation to staff.
A statutory code of practise on the fair and transparent distribution of tips, which will have legal effect under the Employment (Allocation of Tips) Act, was set out by the previous Conservative government back in April.
As outlined in the code, the act and secondary legislation will apply to England, Scotland and Wales, and ‘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’.
Not all tips are under the scope of the act, and therefore subject to the guidance, however. 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 legislation.
Digital tipping, whereby a customer uses an app to directly tip members of staff, bypassing the employer altogether, is also out of scope.
Employers should consult with workers to seek broad agreement in the workplace that the system of allocation of tips is fair, reasonable and clear and must maintain a written policy on how tips are dealt with at their place of business, ensuring this policy is made available to all their workers.
A ‘significant shift’
Many industry voices have welcomed the introduction of the Act.
Writing on X this morning, Sacha Lord, night time economy adviser for Greater Manchester, described it as a ‘great day for the hospitality workers’.
He said: “Finally… it should always have been the case, but after years of lobbying… From today, if you work in a restaurant, pub, bar, or anywhere where tips are involved; it’s now illegal for the operator to withhold them.”
All of the industry's major unions have backed the Act, including the Night Time Industries Association (NTIA), a leading advocacy group dedicated to promoting and enhancing the night-time economy.
“The new tipping legislation marks a significant shift for the UK's hospitality and night-time economy,” says Michael Kill, CEO of the NTIA.
“We welcome the move towards transparency and fairness, ensuring that staff rightfully receive the tips and service charges that are intended for them. This has been a long-standing issue, and we commend the government for addressing practices that have disadvantaged many workers.
“Many businesses have been preparing for this shift by adopting a code of best practices, supported by unions. However, some restaurants and venues, already grappling with rising wages and inflation, may be forced to take significant steps to stay afloat. It is a challenging time for our sector, but this legislation is a necessary step forward in protecting the livelihoods of workers who rely on tips.
“We encourage businesses to continue exploring all options to ensure staff and customers benefit while maintaining the quality of service that our sector is known for.”
Non-statutory guidance brings ‘frustration’
As well as the code of practise, the Government published non-statutory guidance for employers related to the fair distribution of tips last week.
Designed to help employers and workers interpret the legislation, the guidance seeks to provide clarity around issues related to the use of agency workers; multi-site operations; and the scope of workers covered by the legislation.
It states that employers are obliged to take into account agency workers when considering the distribution of tips; that tips received across multiple sites of operation cannot be pooled; and that all workers involved in directly providing service to customers should be considered in the distribution of tips.
Peter Davies, managing director at WMT Troncmaster Services, wrote on LinkedIn that he engaged with the Department of Business & Trade earlier this year to try and ensure that the non-statutory guidance would be timely, comprehensive and helpful, but ultimately describes it ‘a rushed and ill-considered publication’.
“For those expecting further detail and clarity on the practical issues arising from trying to implement the new rules there will only be further frustration,” he says.
“The ‘practical guidance‘ runs to only three very limited examples, two of which simply reinforce already-accepted knowledge and the third of which seeks to radically reinterpret both the Act and the code of practice.”
Davies notes that the third example, which relates to the scope of workers covered by the legislation, speaks about monies only being shared by workers who ‘interact with customers during service’ and those workers who ‘directly provide a service to customers’, but claims these concepts and phrases do not appear in either the Act of Parliament or code of practice.
The guidance says the application of this principle ‘varies depending on the specific circumstances of the industry and employer, and the employer must determine which jobs should be included, and justify this in their policy’.
“Businesses and troncmasters should be careful about choosing to exclude certain team members based on non-statutory guidance, which has no legal force and is contradictory to legislation already on the statute book,” warns Davies.
“Such an exclusion might actually increase the possibility of an excluded employee successfully bringing a claim against their employer on the grounds of an unfair exclusion from a share of tips and one which is not in accordance with the Act or code of practice.”
Price rise warnings
In the weeks and months leading up to the implementation of the Tips Bill there have been suggestions that, amid higher minimum wage costs and ongoing food inflation, some restaurants may be forced to raise prices as a result of the legislation.
It follows a survey carried out by UKHospitality back in 2022, which revealed that up to a fifth of businesses in the sector were keeping a proportion of the service charge to help cover their own costs.
“There is a growing concern that the Act may lead to higher menu prices,” says Conor Sheridan, CEO of restaurant management software business Nory.
“As businesses adjust to the new regulations, many will face pressure to protect their operating margins, which could result in price increases. Margins are already razor-thin, and with this new law in place, businesses can no longer rely on tips to plug the gaps.”
Looking ahead, Sheridan adds that the industry needs to evolve to a place where operators feel confident in charging enough to cover all their costs.
“The goal should be to create a more transparent and sustainable business model that benefits both employees and customers without compromising on quality.”
Northern Ireland concerns
Concerns have also been raised regarding the lack of implementation of the Act in Northern Ireland.
Speaking to The Guardian, the Unite union said some restaurants and other businesses may slip through the net of new legislation, and warned that workers in Northern Ireland, where legislation has yet to be introduced by the Stormont executive, would remain out of pocket.
Neil Moore, the union’s lead regional officer for hospitality in Northern Ireland, said: “Stormont’s failure to implement fair tips legislation has left bosses free to dip their hand in the tips when it suits them.”
‘Further measures’ planned
The topic of tipping is one that has dogged the sector for years, with calls to introduce more robust laws related to gratuities and service charge stretching back to 2015 when, following revelations of several high-profile restaurant groups keeping all or part of the service charge added to bills, a Government consultation found that restaurant customers were overwhelmingly in favour of the tips they paid going to the people who served them.
In the intervening years, the topic has oft been debated in Parliament. The Conservatives pledged to tackle the issue of the unfair distribution of tips in its 2019 manifesto; while Labour set out plans in 2022 to ensure employers allocate all tips, gratuities and service charge payments to workers in full, without any deductions apart from statutory taxes.
Speaking back in July, Justin Madders, Minister for Employment Rights, revealed that the new Labour Government plans bring in further measures related to tipping in due course.
“This Government will ensure they are fit for the modern economy and deliver on our plan to Make Work Pay,” he said.
“We will be introducing further measures on tipping to ensure workers get their fair share of tips.
“[This] is just the first step of many in protecting workers and placing them at the heart of our economy.”
The Department for Business and Trade has previously estimated that £200m a year will go back into the pockets of staff by retaining tips that would have otherwise been deducted as a result of the Employment (Allocation of Tips) Act coming into force.