The Employment (Allocation of Tips) Act 2023: A fair shake for Hospitality Workers

The Employment (Allocation of Tips) Act 2023: A fair shake for Hospitality Workers

Introduction
In recent years, the issue of tips and gratuities in the hospitality industry has sparked widespread debate. Many customers have expressed concerns about where their tips are going, and workers have long fought for fair treatment and the right to keep what they rightfully earn. Addressing these concerns head-on, the Government has taken a significant step by passing the Employment (Allocation of Tips) Bill, which received Royal Assent on 2 May 2023, becoming the Employment (Allocation of Tips) Act 2023.

The Act aims to ensure that hospitality workers receive 100% of their tips, gratuities, and service charges, free from any unfair deductions, and fosters transparency in their distribution. While the Act won’t take effect until 2024, it promises to bring positive changes to the industry and the lives of countless workers.

Coverage of the Legislation
The Employment (Allocation of Tips) Act 2023 will apply to both public and non-public places of business. A public place of business is defined as one where there is face-to-face interaction between customers and the employer’s workers. Non-public places are businesses without direct customer interactions, but tips, gratuities, and service charges can still be allocated if the employer has one or more public places of business. The legislation will also extend to employees and agency workers, including those whose tips are processed through an independent tronc operator.

Tronc Operators and Their Duties
A tronc is a system in which tips and service charges are pooled and distributed among employees based on agreed-upon rules. Tronc operators are individuals or entities responsible for managing this process. Tronc operators play a crucial role in ensuring that tips are allocated fairly among workers. They must follow the principles set forth in the Act and the accompanying Code of Practice to maintain transparency and fairness in the distribution process. A well-structured tronc system can enable employers to claim a National Insurance exemption for tips paid through the tronc. This exemption helps maximize the amount of tips received by workers, benefiting both employees and employers.

Tronc operators must equally ensure that the tronc system complies with all legal requirements and is aligned with the guidelines provided in the Code of Practice. This includes adhering to the Act’s provisions regarding the timing of tip payments and the fair allocation of tips.

Qualifying Tips, Gratuities, and Service Charges
The Act ensures that workers are entitled to receive “qualifying tips, gratuities, and service charges.” The precise definition of qualifying tips will be outlined in the forthcoming Code of Practice, which will promote fairness and transparency in their distribution. The legislation refers to the Code of Practice, which means employers must consider it when determining what constitutes a fair allocation.
Useful tip: We advise employers also take into account any tips that are received through food delivery sites such as Uber Eats and Deliveroo, where employers may have their own delivery drivers for the service.

Timing and Record-Keeping
Any tips, gratuities or service charges must be paid to workers no later than the end of the following month in which the customer made the payment. To ensure transparency and compliance, employers must maintain records of all qualifying tips for a three-year period. In some circumstances, it may be necessary for employers to keep records for up to 6 years (limitation period) for HMRC purposes and for any potential claims.

Complaints and Enforcement
In case of non-compliance, workers can file complaints to an Employment Tribunal within a three-month period from the alleged failure. The Tribunal can order employers to revise their tip allocation policies, pay appropriate compensation (not exceeding £5,000), and ensure adherence to written policies and record-keeping requirements.

Our Opinion
The Employment (Allocation of Tips) Act 2023 is a significant step toward fairness and transparency in the hospitality industry. By ensuring that workers receive 100% of their tips, the Act protects the rights and earnings of hardworking employees who rely on gratuities as part of their income. The Act’s coverage of both public and non-public places, as well as agency workers, is commendable, as it seeks to create a level playing field for all employees. Additionally, the provision for independent tronc operators ensures that legitimate tronc systems can continue to operate without hindrance.

The introduction of a Code of Practice will provide much-needed clarity on fair allocation, benefiting both workers and employers. It will help employers understand their responsibilities better and empower workers to assert their rights regarding tips and gratuities.

Employers will need to have a policy in place to suit the Code of Practice, we recommend seeking legal advice in respect of this in preparation for the enforcement of the Act in 2024. It is also worth noting that existing policies internally implemented may be more favourable for some employees over others and workers may feel concerned as to how their tips will get allocated once the Act comes into force. It is therefore essential that organisations go through a consultation process to review their existing policies before the Code of Practice is released.

Concerns have been raised about the potential administrative burden on businesses, particularly those in the leisure and hospitality sector. While we acknowledge the need for practicality in implementation, we believe that the long-term benefits of a more equitable distribution of tips outweigh the initial challenges.

In conclusion, the Employment (Allocation of Tips) Act 2023 is a step in the right direction for the hospitality industry. By protecting workers’ rights, promoting transparency, and fostering fair treatment, it sets a positive precedent for the future. As the Act takes effect, we encourage businesses to prepare proactively, review their tipping practices, and seek legal advice to ensure compliance with the forthcoming legislation and Code of Practice.

By Suraj Purohit.
Employment Paralegal at Kalra Legal Group.
14/08/2023