As of 1st October 2024, the Employment (Allocation of Tips) Bill came into force. The Government is yet to publish its formal guidance on the legislation, however, we wanted to share our interpretation of the requirements in the absence of the official guidance to provide you with some clarity on the matter.
Who Is Covered by the New Law?
Employers who receive tips more than occasionally must allocate tips to staff in a fair way.
The law applies to all tipping sectors, the most common of which include those in the fields of hospitality, leisure and service, such as hotels, pubs, bars, restaurants, casinos, betting shops and hairdressers.
The law covers employees (including zero-hours employees), casual workers and agency workers, but not self-employed people.
What Counts As a ‘Tip’?
Tips include (but are not limited to):
- Cash payments
- Card payments
- Gratuities
- Service charges
- Payments via apps
- Vouchers, such as gift vouchers
- Non-monetary tokens, such as casino chips
What Sort of Tips Are Covered By the New Law?
Not all tips are covered by the new law. The way in which the tip is paid (cash, card, app etc.) is not the deciding factor. If you, as the employer, have control, or significant influence, over the tips, they must be shared out fairly. For example:
- Tips added onto bills via a card payment
- Tips collected via an app, to be shared out later
- Cash tips which are handed to workers but collected in one pot, to be shared out later
What Sort of Tips Are Not Covered By the New Law?
‘Worker-received tips’, over which you as the employer have no control, are not covered and can stay with the individual worker who received them, with no employer intervention. For example:
- Cash handed directly to a worker by a customer, which the worker can keep
- The direct tipping of an individual staff member via an app
However, please note that you can choose to include these tips in the shared pot of tips if you like; it is up to you.
What Sort of Approach Would Be Considered Fair?
Once you have established what counts as a tip, you need to work out how to fairly share tips out among your staff.
The simplest way is probably to calculate the hourly tips rate. You do this by adding together all the relevant tips received by all staff in a set ‘relevant period’ (usually a week or a month) and dividing this total by the total number of hours worked by all staff.
For example, if your staff received total tips of £1,000 in a month, and they worked 500 hours between them, the hourly tips rate would be £1,000 / 500 = £2.
You would then work out the amount to be given to each individual by looking at the number of hours they worked in the same time period. For example, if Employee A worked 100 hours over the month, they would get 100 x £2 = £200 in tips.
Some employers feel that it is fairer for certain types of job roles to get a higher share of the tips than others. For example, you may feel that the waiting staff, who interact with the customers more and therefore work harder for the tips, should get more than the kitchen staff.
In this case you would allocate a higher proportion of the total tips to waiting staff. In the above example, you may have: Employee A (waiting staff) who works 50 hours and Employee B (kitchen staff) who also works 50 hours. You feel that waiting staff should get double the tips as kitchen staff. Therefore, the tips are shared in a ratio of 2:1 between the two staff members. You would also need to take into account other factors, such as how many hours each person worked; this can get complicated.
You may consider several different factors other than job role when allocating higher proportions of tips to different individuals, but your reasoning should be clear, objective and non-discriminatory. Examples of factors which may be considered are:
- Busyness of different shifts
- Seniority of role
- Length of service
- The individual’s performance in their role, customer feedback and their ability to meet targets set in reviews
You should take care not to accidently discriminate against certain groups of workers. For example, you may initially decide to allocate more tips to workers who work an evening shift than to those who work a day shift because it is busier and harder work, but later realise that more women are unable to work the evening shift due to childcare responsibilities.
Tips will normally be shared between workers who work at the specific place where the tip was paid, as opposed, for example, to being shared between all those who work in any chain restaurant owned by the same employer.
The exact method of sharing out tips is largely up to you, as long as it is non-discriminatory, clear and transparent, and fair. Although fairness can be subjective, you should be able to explain your reasoning if questioned.
How and When Should Employers Pay Tips to Their Staff?
You need a troncmaster – someone to administer the collection and distribution of tips (unless all the tips go directly to your workers and so are classed as out of your control).
You can allocate a member of staff, or an external person, to act as a tronc operator. In the UK, tronc refers to the system used to pool and distribute tips among workers, examples of which are set out in the section above. If you use an external troncmaster, there are some tax benefits.
You must make sure that staff receive the tips by the end of the calendar month following the calendar month during which the tips are received. For example, if a tip is received by the business on 7 October, it must be given to the staff by 30 November.
Tips are usually paid through the payroll, but don’t have to be. You may need to speak to your accountant on this.
You must pay the whole tip to the staff, and not make any deductions, such as for administrative fees. The only deductions you can make are those required by law, such as for tax.
Tips are not classed as income for national minimum wage purposes, so you can’t use them to top up a worker’s remuneration. However, they do count as income for other purposes, such as tax, tax credits and universal credit.
What About Staff Who Are on Leave?
Payment from tips which come from the employer would count as part of usual wages and therefore should be paid to staff who are on annual leave and taken into account when calculating family-friendly pay (such as maternity, paternity and adoption pay).
There is case law to say that tips received through a genuine ‘tronc’ arrangement (a tax efficient way of paying tips through a third party tronc master) would not be part of holiday pay, because they are not paid by the employer, but by an external person.
Workers on sick leave who receive statutory sick pay would not normally be entitled to a share of the tips. If they receive company sick pay, you should state whether or not tips would be included.
How Should Staff Be Informed of the Tipping Policy?
You will need to have a clear written policy explaining how tips are allocated. This policy should be available to all staff, but there is no legal requirement for you to provide it to customers.
Ideally, you would consult with their staff and get their agreement that your specific tipping policy is fair. If you have a collective agreement in place, you may also need to undertake a formal consultation process.
Staff cannot contract out of their rights about tips. This means that you must share out tips fairly, even if your staff are all in agreement that everyone can keep their own tips. Even if they agree, it would still be breaking the law.
What Records Must Employers Keep?
Employers must keep a record of all qualifying tips received over the last three years, and how these were allocated to each worker. You must comply with data protection rules.
Staff will be able to ask to see these records, but such requests are limited to one request per person, per three-month period. You will have four weeks to comply.
What Can Staff Do if They Feel That the Process Is Not Fair?
They can raise an informal complaint, or a formal grievance. They may bring a claim in an Employment Tribunal. This claim could either be that tips have not been allocated or paid fairly. The worker has 12 months to bring such a claim, which is longer than the usual time limit for Employment Tribunal claims. Another type of claim is regarding failure to keep correct records; the time limit for this is three months.
Any Employment Tribunal may result in an employer being ordered to pay up to £5,000 to compensate the staff member for financial loss.
Need Advice?
For further information, please contact our team on 02920 853788 or at tcms@thomas-carroll.co.uk.
