HR Expert: What do employers need to know about the new law on tipping?

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Q. My client owns a busy bar popular with tourists and locals. Generally, their bar and waiting staff receive a significant amount in tips, either given directly to them or via the service charge my client adds to customer bills on busy nights. They have contacted me about the upcoming law on tips, which they have heard is going to change things for them later this year. What is this new law and how can they start to prepare for it?

A. It has recently been announced that the Employment (Allocation) of Tips Act 2023 and supporting regulations, along with a new statutory Code of Practice on the fair allocation of tips, are expected to take effect from 1 October 2024. This follows a long history of attempts to legislate on the allocation and distribution of tips and aims to ensure employees receive 100% of qualifying tips from their employer.

The new law brings in an obligation on affected employers under which they must ensure that the total amount of qualifying tips that are paid at, or otherwise attributable to, a place of business of the employer, are allocated fairly between the workers at that place of business.

Qualifying tips, ie those caught by the legislation, include both employer-received tips and certain worker-received tips where the employer or an associated person has some control over them. Qualifying tips must be allocated and distributed fairly amongst staff working in the business.

If on the other hand the worker receives and keeps a tip, with no employer control or involvement, the tip is outside of the scope of the legislation. Digital tipping, where a customer uses an app to directly tip members of staff, bypassing the employer altogether, is also out of scope.

The new law requires tips to be fairly allocated. To help determine what is fair, a statutory Code of Practice has been created. The Code is not an exhaustive list of factors for employers to consider. Instead, it provides overarching principles on what fairness is, the areas in which employers need to make decisions to comply with their duties, and how they should apply these principles in their specific place of business.

However your client decides to introduce these rules, they will need to keep it under review and update their allocation and distribution of tips where it would be fair to do so.

To prepare for the new law, you client will need to consult with workers or their representatives to seek broad agreement about how tips will be allocated.

A written policy is also needed where tips are paid, and it must include:
a. whether the employer requires or encourages customers to pay tips
b. how the employer ensures that all qualifying tips paid at, or otherwise attributable to, the place of business are dealt with, including how the employer allocates tips between workers.

The policy must be written in plain language, and employers must provide an accessible format for any worker with a disability, on request.

A new tribunal claim will be created which allows employees to challenge an employer on their tipping practices, and in cases where the Code has not been followed, there is the potential for an uplift of any award by 25%.

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