ICB has communicated about The Employment (Allocation of Tips) Act 2023 which received Royal Assent on 02 May 2023.
This act amends the Employment Rights Act 1996 and requires employers to:
- Pass on all tips and service charges to workers, including agency workers
- Ensure they are distributed in a fair and transparent manner
- Have regard to a new Code of Practice on fairness and transparency of tip distribution
- 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, and
- Maintain a record of all tips paid at their place of business and their allocation and distribution between each worker,
In December 2023, the Department for Business and Trade (DBT) issued a draft Code of Practice consultation. On 22 April 2024, a responses document was issued together with an updated Code of Practice. This was approved before the UK Parliament on 25 May 2024 which was the last day of business before the General Election and on 25 July 2024, The Employment (Allocation of Tips) Act 2023 (Commencement No. 2) Regulations 2024 bring this into force on 01 October 2024.
For Bookkeepers
The legislation and Code of Practice only concern how employers allocate tips and service charges to workers. There is no change to the way in which tips are taxed. As we have indicated via Wages Wednesdays, it does not matter how the tips or gratuity is received (cash, Credit Card etc):
- An ‘employer-received tip’, gratuity or service change which is where, for example, the customer pays the value to the employer, possibly as a service charge
- A ‘worker-received tip’, gratuity or service change which is where the worker receives the value and is required to distribute it, say at the end of a shift
The key words are ‘fairly allocate’ amongst workers at the same location. As the Code of Practice says:
Allocating and distributing tips fairly 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 workers different proportions of tips.
However, the employer is required to justify why they have chosen the allocation methods they are using. For example considering:
- The type of role / work (front of house, back of house etc)
- Individual and / or team performance
- Seniority / level of responsibility
- Length of time served with the employer and
- Customer intention
