Update on Allocation of Tips

Article

02 May, 2024

The Government have now produced a response to the consultation on the draft Statutory Code of Practice on Fair and Transparent Distribution of Tips and produced an updated Statutory Code of Practice (the Code) as a result, which will be subject to Parliamentary approval. The Code will support the measures included in the Employment (Allocation of Tips ) Act 2023 (the Act). The Code of Practice can be found here.

The Act and the Code will be brought into force on the 1st October 2024 by commencement Regulations. This is later than anticipated (it was thought it would be early summer when we would see this - but it is useful that we now have confirmation of the date). There will also be some non-statutory guidance, but we haven't seen that as yet.

By way of reminder- the Act requires that employers:

Pass on all tips and service charges to workers without deductions.
Ensure that tips are distributed in a fair and transparent manner when the employer takes control, or exerts significant influence, over their distribution.
Have regard to the Code on fairness and transparency of tip distribution when they are distributing or influencing the distribution of tips.
Maintain a written policy on how tips are dealt with at their place of business, and ensure this policy is made available to all their workers.
Maintain a record of all tips paid at their place of business and their allocation and distribution between each worker, to which workers have the right to request access.

What is included in the Code?

The Foreword to the Code states that: "where relevant, judges have a duty to take this Code into account in determining disputes relating to tipping practices. However, failure to fully observe the Code does not in itself amount to proof that an employer has been acting unfairly." However, employers must have regard to the Code when designing and implementing their tipping policies and practices.

The Code sets out the following:

Qualifying tips

The Act defines qualifying tips, gratuities and service charges as "employer-received tips and worker-received tips which are subject to employer control or are connected with any other worker-received tips which are subject to employer control."

An employer-received tip is "an amount paid by a customer of an employer by way of tip, gratuity or service charge which is received upon its payment or subsequent payment by the employer or an associated person, or is received upon its payment by a person under a payment arrangement made between the employer and that person."

A worker-received tip "is an amount paid by a customer of an employer by way of a tip, gratuity or service charge which is received upon its payment by a worker of the employer and is not subsequently received by the employer or an associated person."

The Code provides an explanation regarding qualifying tips as follows:

The method of payment (card, cash etc) does not determine whether a tip is a qualifying tip for the purposes of the Act and the Code. However a tip paid by card or a QR code, for example, is likely to have been received by the employer, making the employer responsible for fair distribution.
The determining factor will be if the employer receives or exercises control or influence over the distribution of tips.
An employer is likely to have control or significant influence over cash tips if they tell staff how to distribute cash tips or if they collect cash tips and distribute them at the end of a shift or as part of regular payroll.
Non-monetary tips can also be qualifying tips if they are received, or controlled, by the employer. The Code gives an example of a worker in a casino receiving a casino chip (which has a fixed value that can be exchanged) in place of a monetary tip paid by cash or card. The non-monetary tip must have a fixed value that can be expressed in monetary terms or exchanged for money, goods or services to be qualifying.
Some tips may be outside the scope of the Code, for example where there is no employer involvement or control, which would be the case when a customer uses an app to directly tip members of staff, bypassing the employer altogether.

Qualifying workers

An employer must ensure that the total amount of the qualifying tips, gratuities and service charges paid at, or otherwise attributable to, a place of business at the employer is allocated fairly between workers of the employer at that place of business. This includes eligible agency workers.

Employers should apply the principle of fairness (which I cover below) when allocating tips. This will apply when there is a mixture of staff e.g. permanent and agency staff. The Code points to the requirement to have a written tipping policy which an employer is required to have under the Act (unless they receive tips only occasionally and exceptionally). The Code gives the example of a clothing shop "which only receives tips from customers a few times a year" as a business which would not need to have a written tipping policy.

In relation to agency workers, any reference to "employer" refers to the hirer for the particular engagement, even if the contract of employment is with an employment agency. After the hirer has made the payment of tips to an employment agency, the agency is responsible for passing this on to agency workers without unauthorised deductions.

Fairness and methods

The Code states that "it will be for each individual employer to determine which specific principles best apply to their business." And then unhelpfully says; "In the event of unresolved disputes, it is ultimately for employment tribunals to decide whether the employer has acted in compliance with the law."

The Code does then set out factors for employers to consider when looking at the fairness of how they treat tips in their business:

The fair allocation and distribution of tips does not necessarily require employers to allocate the same proportion of tips to all workers. There may be legitimate reasons why employers choose to allocate different proportions of tips to different workers.
The allocation and distribution of tips should be determined by reference to a clear and objective set of factors which should be fair and reasonable given the nature and circumstances of the employer's business.
The Code provides an illustrative list of factors which an employer may consider which are: type of role or work; basic pay; hours worked during the period when tips are received; individual or team performance; seniority or level of responsibility; length of service with the employer and customer intention.
Employers must avoid indirect or unintentional discrimination which may be a risk where fewer tips are allocated to a group of workers which include a disproportionate number of workers with a particular protected characteristic.
Employers should consult to seek broad agreement that the system of allocation of tips is fair, reasonable and clear. The factors considered by employers in the allocation of tips must be stated in the tipping policy and shared with workers.
Employers must have regard to any legal or contractual requirements to collectively consult.
Employers should review their approach to allocating tips on a regular basis in line with staff turnover and wider changes to their organisation. "There is a risk that a previously lawful method of tip allocation becomes unlawful and discriminatory if certain groups of workers become split on the basis of a protected characteristic."
Provided it is not discriminatory, the fact that a particular method of distributing tips is genuinely considered by affected workers to be fair, may help a tribunal to conclude that it is fair and reasonable.

Methods

The Code notes that there are various methods by which tips can be allocated by an employer:

An employer may receive the tips directly and then pay the workers their share of the tips as part of the next payroll cycle.
An employer can allocate tips fairly and transparently by using a tronc. If an employer uses an independent tronc operator the instructions that the employer sets of its operation must be in line with the principles of fairness. If the employer does this and has a reasonable belief that the tronc is operating independently and fairly, they will be regarded as having complied with the Code.
If an employer becomes aware of an independent tronc operator acting in an unfair or improper manner, an employer must act upon this e.g. by instructing the tronc operator to change its operation etc.

NOTE: the Code notes that the Act requires employers to ensure that all tips are distributed to staff at the latest, by the end of the month following the month in which the tips are paid by customers e.g. "if a customer leaves a tip on 23 June, it must be distributed by 31 July at the latest."

Transparency

Where qualifying tips, gratuities and service charges are paid (or are attributable to) an employer's place of business on "more than an occasional and exceptional basis" the employer must:

Have a written policy on how it deals with tips. Workers must be aware of their entitlements in line with the tipping policy. How this policy is communicated to staff is up to an employer - this can be electronic or as a physical copy. It must be written in plain language and be in an accessible format if requested by any worker with a disability. For agency workers, employers can provide them with a copy of the policy or have the agency share the policy with the worker on their behalf. Employers do not need to share their tipping policy with customers, but they can do so. There must also be transparency when the policy is updated.
Keep a record of how every tip has been dealt with in accordance with the obligations of the Act.
This tipping record must be kept for three years beginning on the date on which the tip was paid.
A worker has the right to make a written request - limited to one request per worker in a three-month period - to "view the tipping record of their employer for a period dating back up to three years, provided they workers for the employer for the full duration of the requested period." An employer must provide their tipping record, including the total amount of qualifying tips received by the employer during the relevant period at the relevant place of business and the amount allocated to the worker making the request. The response to the request will not include specific amounts paid to other workers, in accordance with data protection law.

Addressing problems

"An employer should ensure they have fair processes in place for resolving issues and responding to queries from workers who have not received the share of tips they expected to." The Code suggests that if a matter cannot be resolved internally, then a worker can enforce their rights in the employment tribunal, which includes agency workers. "The complaint may be based on a failure to comply with the requirements surrounding fair allocation and distribution, or the requirements surrounding the written tipping policy and tipping records, or both".

If an employment tribunal finds a complaint about fairness or transparency in tipping is well founded, it can:

Make a public declaration to that effect.
Order the employer to revise a previous allocation of tips.
Make a non-binding recommendation on a previous allocation of tips, or
Order the employer to pay a worker or workers compensation - this can include other workers at the relevant place of business who have not made a complaint to the tribunal.

For more information contact Catherine Hare in our Employment & HR department via email or phone on 0161 830 8813. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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