Tipping might just have become more complicated

New legislation on tipping is expected to come into force in 2024.

It stemmed from criticism that some employers were making deductions from tips, gratuities or service charges (which we'll just refer to as 'tips' from now on) or were not distributing these fairly between staff.

Qualifying tips

The changes apply mainly to 'qualifying tips' which, very broadly, are tips received by employers (for example, via card payments) or those received by workers but 'controlled' by employers.

Deductions from tips

Currently, employers can make deductions from (or retain a portion of) tips, but only if these deductions are authorised by a worker's contract or prior written consent.

The new legislation makes deductions unlawful, regardless of the contract or written consent. Importantly, employers will need to pay over the 'total amount' of tips - so will not, for example, be able to deduct card processing fees.

Allocation and payment of tips

Employers will need to ensure that tips are 'allocated fairly' between workers at a place of business, and paid to workers no later than the end of the month following the month in which they were paid by the customer. A code of practice is to follow with guidance on this.

Workers will be able to bring tribunal claims if they consider there has been an 'unfair allocation', or non-payment, within 12 months from the alleged breach - significantly longer than the usual three-month time limit for tribunal claims.

For successful claims, tribunals will be able to:

• Award up to £5,000 to compensate a claimant for financial loss
• Require an employer to revise an allocation of tips
• Order payments to other workers, even if they did not bring a claim.

If a tribunal 're-allocation' results in some workers having been overpaid, employers won't be able to seek reimbursement of the overpayment.

Written policy

If qualifying tips are paid 'more than occasionally or exceptionally' at a place of business, employers will need a written policy on tips for that place of business, including specified information.

If workers receive tips, but they are not 'qualifying tips', employers will need to inform workers at that place of business that they are not required to have a written policy in terms of the legislation, and of the reasons for this.

Records and requests for records

If qualifying tips are paid at a place of business more than 'occasionally or exceptionally' employers will need to record how every qualifying tip is dealt with (including the amount of tips paid and the amount allocated to workers) and keep these records for three years. 

Workers will be able to request certain records and employers will need to respond within four weeks of receiving the request.

Agency workers

Agency workers will have similar rights under the legislation as other workers.

What will happen in practice?

The aim of the legislation - largely, to prevent a part (or even all) of credit card tips being kept by employers - is laudable. However, the administrative requirements imposed by the legislation are significant, as are the risks of 'getting it wrong'. It certainly begs the question as to whether some businesses will opt to refuse tips altogether (to take the business outwith the scope of the legislation), or take steps to ensure that none of their tips are 'qualifying tips' - for example, by accepting cash-only tips which workers can immediately 'pocket'. However, particularly in light of the prevalence of non-cash payments, even the latter option is likely to result in workers taking home less at the end of the day - quite the opposite to what was intended. 

More detail on all of the requirements above is available to Workbox subscribers on our new guidance page Pay: Tips.