Chelsea Brooke-Ward discusses: New Code of Practice for Fair and Transparent Tip Distribution

The Secretary of State for the Department for Business and Trade (DBT) has issued a new Code of Practice to ensure fairness and transparency in the distribution of tips under the Employment (Allocation of Tips) Act 2023. It was originally envisaged this would come into force from 1 July 2024, however this has been postponed until 1 October 2024. The Code applies to businesses in England, Scotland, and Wales and will be periodically reviewed for updates.

Employer Responsibilities

Employers must adhere to the Code when establishing and managing their tipping policies. Issues should ideally be resolved locally first, with mediation support available from ACAS if needed. Workers can still bring claims to Employment Tribunals if they believe their employer has not acted fairly or transparently. Judges are required to consider this Code in disputes regarding tipping practices, though non-compliance with the Code alone does not prove unfair treatment per se by employers.

 

Additional Guidance

Further non-statutory guidance will be released to help employers and workers understand the legislation and we will provide an update once this is released.

 

Purpose of the Tipping Act

The Employment (Allocation of Tips) Act 2023, referred to as the Tipping Act, aims to ensure fair and transparent distribution of tips, gratuities, and service charges, collectively referred to as “tips.” The Act mandates that tips intended for workers go to them, promoting fairness and standardising practices across employers.

 

Key Provisions of the Tipping Act

  1. Passing Tips to Workers: Employers must pass all tips to workers without deductions, except for limited scenarios like income tax.
  2. Fair Distribution: Tips controlled by the employer must be distributed fairly and transparently.
  3. Adherence to the Code: Employers must consider this Code when distributing tips.
  4. Written Policy: Employers must maintain a written tipping policy, accessible to all workers.
  5. Record-Keeping: Employers must keep records of all tips received and their distribution, available for worker access upon request.

Code of Practice Structure

The Code provides principles rather than exhaustive rules for employers to ensure fairness. It includes sections on scope, fairness, transparency, problem resolution, and a glossary of terms.

 

Qualifying Tips

The Tipping Act defines qualifying tips as those received or controlled by the employer. The method of payment does not affect qualification; employer control does. Non-monetary tips like vouchers or casino chips are also included if controlled by the employer. Tips received directly by workers without employer involvement are not covered by the Act.

 

Qualifying Workers

All workers, including agency workers, are entitled to fair tip distribution. The Act does not cover self-employed individuals. Employers must ensure fair allocation among all workers, including agency staff and those on zero-hours contracts.

 

Principles of Fairness

Fair tip distribution may vary; not all workers receive equal shares. Employers should use clear, objective factors to determine tip allocation, such as role type, basic pay, performance, and customer intention. Avoiding discrimination is crucial. Consultation with workers to ensure perceived fairness is recommended, and policies should be reviewed regularly.

 

Methods of Allocation and Distribution

Employers can distribute tips directly or use a tronc system, an independent arrangement for tip distribution. An independent tronc operator can be a staff member or an external firm. Employers must ensure the tronc operates fairly and intervene if it does not.

 

Transparency Requirements

Employers must have a written tipping policy if tips are regularly received. This policy must be accessible to all staff and updated as necessary. Employers must also maintain a tipping record for three years, providing details upon worker request.

 

Addressing Problems

Employers should have processes for resolving tip-related issues, treating queries from agency workers equally. Unresolved issues can be mediated by ACAS, and workers can escalate to employment tribunals if necessary. Tribunals can issue declarations, order policy revisions, or award compensation. Workers can submit unlawful deduction of wages claims for breaches of the Tipping Act, including unfair allocation and distribution of tips, failure to maintain or provide access to a written tipping policy, and improper record-keeping of tips.

This new Code aims to create a fairer system for tip distribution, ensuring that all workers benefit from the tips they earn.

 

About the Author

Chelsea Brooke-Ward is an employment barrister specialising in workplace discrimination and harassment cases. With extensive experience in advising and representing both employers and employees, she is a leading voice on employment law reforms and workplace equality initiatives.

If you would like to book Chelsea, please contact one of her clerks:

Lead Employment Clerk – Talia Webster on 0113 202 8609

Senior Clerk – Andy Reeves on 0113 213 5252

Joshua Duree on 0113 213 5246

Mike Alexander on 0113 2135268

Ben Ellison-Tope on 0113 2135207