October 2024

The Employment (Allocation of Tips) Act 2023 (“the Act”), supplemented by a statutory code of practice and associated non-statutory guidance, comes into force today, 1 October 2024.

The Act significantly impacts the hospitality industry by introducing new rules governing how employers must deal with tips paid by customers, and it is estimated it will lead to an additional £200m being taken home by millions of workers in the UK.

The new requirements

The new legislation affects all retail and hospitality businesses including restaurants, cafes, hotels, hairdressers and taxi firms.

Businesses must now ‘fairly allocate’ all tips received. In addition, tips must be paid straight to workers and cannot be retained by the employer for any reason, including for business expenses.

“Tips” includes gratuities and service charges. However, it does not include cash tips if those are received by a worker and not declared to the employer. It does not matter if the tip is made by card, cash, or via an app.

In addition, employers must not make any deductions from tips except for tax, and where appropriate, National Insurance.

Tips must be paid to the worker/employee no later than the end of the month following the month in which it was paid by the customer.

What does fairly allocating tips mean?

The statutory code states that allocating and distributing tips fairly does not necessarily require employers to allocate the same proportion of tips to all workers, providing there are legitimate reasons why different workers are allocated different proportions.

The code provides examples of the criteria that employers may consider when allocating tips, such as:

• the number of hours worked in the period the tips were collected;
• individual and team performance;
• level of responsibility and/or seniority;
• customer intention;
• length of service;
• type of role (e.g., front of house or back of house); and
• rate of basic pay.

The code prevents employers from pooling tips from multiple sites and all individuals who are involved in providing a direct service to customers should be considered as part of the distribution, including agency workers.

What do employers need to do?

Unless employers only receive tips on a very occasional or exceptional basis, they will need a written policy in place relating to the collection and distribution of tips.

They will also need to decide on their chosen method of tip distribution. How employers distribute is up to them, as long as it is fair. Some employers may choose to allow each individual worker to retain 100% of their tips received, whereas some employers may choose to implement a tronc system. However, using a tronc does not absolve employers of their responsibilities, so they will need to be careful to ensure the use of a tronc system is appropriate and that it is properly and fairly implemented. Employers should consider whether it is appropriate to seek the agreement of their staff as to which system of allocation will be used.

Employers must keep records of the qualifying tips received and how these are distributed. These records must be kept for three years from the date the tip was received and staff may request copies.

It is recommended that regular checks are made to ensure tips are being distributed in line with policies. It is also recommended that policies are regularly reviewed in line with business changes, such as restructurings or redundancies.

Connected obligations

Employers should be mindful of their data protection obligations when sharing records of tips. Employers should not provide details of the specific amounts paid to other workers, nor other people’s personal data, such as their bank details. Instead they should provide the total amount of qualifying tips received and the amount paid to the worker making the request.

Tips do not form any part of the National Minimum Wage. Employers must ensure that workers are paid in line with the National Minimum Wage and National Living Wage requirements regardless of any tips the worker may receive. 

How should an employer deal with complaints relating to tips?

The code of practice states that parties should attempt to resolve issues relating to tips between themselves. It is therefore imperative that any complaints are investigated and dealt with properly, either informally (if appropriate) or under a suitable grievance procedure.  

If the matter cannot be resolved internally, a member of staff may make a claim in the employment tribunal and they may be awarded up to £5,000 to compensate them for any financial losses relating to their employer’s failure(s).

If you have any questions on the fair distribution of tips or need assistance regarding your compliance with the new legislation, please contact a member of our Employment team.

Senior Associate in the Employment team Emma Cocker comments on ageism in the private wealth sector, and how firms should be proactive in tackling this form of discrimination, in eprivateclient.

Emma’s comments were published in eprivateclient, 27 September 2024, and can be found here

“Employing older workers brings tangible benefits. These individuals often possess a depth of experience that younger workers may not, as well as an ability to connect with older clients. This is particularly important as statistics show that older individuals hold the bulk of private wealth within the UK. As such, workplace ageism ought not to be a problem in the private wealth sector, but this is unfortunately not the case. 

“The Equality Act 2010 protects against age discrimination in all aspects of employment including recruitment, terms and conditions, promotions, training and dismissals. Treating a worker less favourably simply because of their age, or in any way connected to their age, is (with very limited exceptions) illegal and should be avoided. Employment Tribunals are quick to root out issues of age discrimination, even in cases where employers attempt to dress up ageism as a legitimate reason for less favourable treatment. Compensation can be high, and cases attract adverse publicity.

“Leaving aside the risks of litigation, firms should be proactive in tackling age discrimination because of the noted benefits of employing older staff. This starts with the recruitment process where “blind recruitment” should be used to eradicate bias based on an applicant’s personal characteristics, including their age. Firms should also use initiatives such as discrimination and diversity training, as well as ensuring workplace policies do not discriminate on the grounds of age. Employee rewards ought to be based on performance and not length of service, and assumptions regarding “slowing down”, or older people being more likely to accept redundancies, should also be avoided.”

A recent BBC article highlighted that more than 20 female former employees have come forward to report their experience of sexual assault (and in five cases, rape) whilst working at Harrods.

This is unfortunately the latest in a series of high-profile sexual harassment cases in the workplace. The effect of such behaviour is extremely damaging, not least because of the risk of costly employment tribunal claims against employers, but also because the significant reputational damage inflicted affects the ability of organisations to attract and retain staff, as well as potentially losing them valuable customers. Cases of sexual misconduct undoubtedly affect businesses’ “bottom line”.

What is the law on preventing sexual harassment in the workplace?

While these latest allegations relate to cases of sexual assault and rape, these cases are thankfully rare. What is much less rare is allegations of sexual harassment at work.

Sexual harassment is unwanted conduct of a sexual nature which has the purpose or effect of either violating the person’s dignity, or creating an intimidating, hostile, degrading, humiliating or offensive environment.

The scope is broad and includes a wide range of behaviours. As the effect of sexual harassment is viewed subjectively (i.e. through the eyes of the victim) it is not uncommon for accused individuals to claim their behaviour was “banter” or, “a compliment” when it was, in fact, sexual harassment.

As well as the accused individual’s responsibility for sexual harassment, employers may also be responsible (or “vicariously liable”) for the conduct of their employees (and in some cases, other third parties such as customers). This can be the case even where they did not condone, or even know, the conduct had occurred.

Legislation will shortly come into force which increases the burden on employers to prevent sexual harassment in the workplace, making it even more important that employers are aware of, and acting in line with, their duties.   

The new duty

The Worker Protection (Amendment of Equality Act 2010) Act 2023 is due to come into force on the 26 October 2024 and creates an anticipatory duty on the employer to take reasonable steps to actively prevent the sexual harassment of their employees; not just to investigate them if they arise.

This is a law which was passed by the last government, but the current government is considering further extending this duty to require employers to take ‘all’ reasonable steps, rather than the reasonable steps that will be required from 26 October 2024.

What should employers do to comply with their new duties?

Having clear sexual harassment policies and procedures, providing anti-sexual harassment training and encouraging a “speak-up” culture are all critical steps for employers. Taking time to consider where the risks lie in a specific working environment, as well as the sector in which the organisation operates will help determine what further action needs to be taken. All of the above should be regularly reviewed and monitored.

Supporting HR managers in dealing with sexual harassment claims is also crucial. They are likely to be the first employee in a senior leadership position to whom such claims are reported and they must be well equipped to deal with allegations appropriately to avoid further potential damage to the organisation.  

What should a business do if a claim of sexual harassment is raised at work?

Any allegations should be properly investigated under an anti-harassment policy or grievance policy and appropriate action should be taken, based on the conduct identified.

Employers that are regulated, such as financial services organisations regulated by the FCA and/or PRA must remember that a failure to investigate and resolve such allegations could lead to regulatory investigations, as well as possible enforcement action.

The behaviour did not take place at their place of work – does this matter?

No. Employers may be liable for sexual harassment committed by their employees ‘in the course of employment’, meaning any place the employee is working, not just their regular place of work. Liability can also attach to acts committed when employees are not working but they are somewhere connected with work. This could include, for example, social drinks after work and Christmas parties.

Creating a culture of acceptable behaviour

It is important that employers create a workplace culture that minimises the risk of sexual harassment. Sometimes sexual harassment can stem from other inappropriate behaviours not being properly investigated and addressed. Turning a blind eye to these behaviours can fail to set the tone as to what is appropriate and inappropriate in the workplace, leading to costly claims against employers.  

If you have any questions on the new duty to prevent sexual harassment, or how to investigate allegations of sexual harassment, or if you require workplace training, please contact a member of our employment team.