New legislation: fairness and transparency in the distribution of tips

Tips, gratuities and service charges are given by customers to reward the hard work and good service they received from staff. Many workers in hospitality and service industries rely on tips to top up their pay but quite often these tips are withheld by employers and never received by the workers for whom they were intended. 

On 22 April 2024, the UK Government published a draft Code of Practice on the fair and transparent distribution of tips that will have legal effect under the Employment (Allocation of Tips) Act 2023.

The Act and secondary legislation will make it unlawful for businesses to hold back qualifying tips, gratuities and service charges from their employees, ensuring workers receive all of the tips they have earned. The updates to the Act and the new statutory guidance: will come into effect on Tuesday 1 October 2024.

New statutory code of practice

The new statutory Code of practice on fair and transparent distribution of tips provides guidance to employers and workers in hospitality and service industries to ensure the fair and transparent allocation and distribution of tips, gratuities and service charges. 

Under the new legislation, employers must give regard to the code of practice and will be obligated to pass on qualifying tips to their workers.

Additionally, workers will have a new right to request a record of the tips allocated to them. This will enable them to bring a claim to an Employment Tribunal if tips intended for them were withheld by their employer.

Under the act, workers are able to enforce their rights by making a claim to the Employment Tribunal, where Judges have a duty, where relevant, to take this into account.

Key changes to legislation

Tips must be allocated fairly and transparently

Employers are not required to give equal amounts of tips to every worker, but they must have a good reason for giving different amounts to some people. The reason for the allocation of different amounts must be based on objective factors, such as the type of work each person does, their pay, hours of work, and job performance.

Workers will be able to view an employer’s tipping policy and their tipping records

If tips are left more than occasionally in your workplace, your employer must have a written tipping policy in place. This policy should explain how tips are accepted, allocated, and distributed. This policy must also be made available for workers.

Prohibited discrimination 

Employers cannot discriminate against anyone when sharing tips. This means they cannot give less tips to someone because of their race, gender, age, religion, or any other protected characteristic.

Regular review

Employers should check their tip system from time-to-time to make sure it remains fair, especially if there is a new hire or there is a new change in the business.

Clear records of all tips and gratuities

Employers are required to keep records of all qualifying tips and provide access to these records to workers upon request.

Qualifying tips must be paid to workers within a reasonable time

Employers must pay qualifying tips, service charges and gratuities to workers within one month of the end of the month in which they were received.

What can you do if your employer’s tipping policy is unfair?

Employers must comply with the code of practice when designing and implementing their tipping policies, systems and processes. If you believe your employer has not acted fairly or transparently in the allocation of tips, you can submit a claim to the Employment Tribunal.

For claims related to Tipping practices, Tribunal Judges will have a duty to take into account the code of practice before determining disputes.