New law: Employers face new laws on staff tips

The new rules ensure all such tips are paid to staff without any deductions (other than authorised by statute, such as tax deductions). They apply to businesses such as, for example, restaurants, cafes and pubs whose workers receive qualifying tips, gratuities and service charges directly or via their employers – although there is no definition of a tip, gratuity or service charge.

Significant changes from the previous rules include requirements that employers:

• Pass on all qualifying tips to eligible workers. Employers cannot make deductions, apart from those authorised by statute – for example, tax under PAYE rules.
• Pass tips for agency workers to the worker or to the agent providing their services. Like employers, agents cannot make deductions.
• Divide qualifying tips up ‘fairly’, including transparently and consistently, among eligible workers ‘no later than the end of the month following the month in which the tip, gratuity or service charge was paid by the customer’.
• Have a written policy covering how qualifying tips will be dealt with and divided up, which must be available to staff entitled to participate.
• Keep records of the way they divide tips for three years from the date the tips are received and give workers sight of certain of them within four weeks of being asked to do so, subject to data protection laws.
• Not deduct bank charges (which can be as high as 5% per cent) from the amounts they divide up among staff, nor make an administrative charge for handling tips.

There are also provisions ensuring that the new laws are consistent with tronc arrangements for distributing tips, gratuities and service charges.

Failure to comply can result in employment tribunal claims.

Note that the new law says the Secretary of State can issue a Code of Practice on tipping, setting out the principles employers must apply to be considered fair, consistent and transparent, which tribunals can take into account when considering whether an employer is complying with the new laws.

The new rules are expected to come into force during 2024.

Operative date

• To be announced

Recommendation

• Employers should start to create or review their policies, records procedures and systems, review the potential impact of the changes on their cashflow, and monitor for a first draft of the proposed Code.