Introduction of New Tipping Rules

The UK Government recently announced a delay to the introduction of its legislation governing allocation of tips from 1 July 2024 to 1 October 2024.

When the legislation comes into force, employers will be required to distribute qualifying tips to workers and will be banned from making deductions from these (other than deductions required by law). Employers will also need to follow the new statutory Code of Practice for Distributing Tips Fairly. Qualifying tips include tips and service charges. It is irrelevant whether the tip is by cash or card, and it can include non-monetary tips such as vouchers, stamps and tokens. Tips received directly by individual staff members are excluded.

Qualifying tips must be distributed to workers, at the latest, by the end of the month following the month in which the tips are paid by customers (e.g., if a tip is received in January, it must be distributed to workers by the end of February). Tips will be distributable via a “tronc” scheme (which is tax efficient in relation to National Insurance). Clear records must be kept for at least three years detailing all qualifying tips received by the employer at the place of business, and the amount allocated to each worker. Workers can ask to view their employer’s tipping record for up to the previous three years, so long as they have worked for the employer for that full period.

Employers must have a written tipping policy and the policy should cover how tips are accepted, how tips are allocated and distributed, and what steps the employer takes to ensure tips are handled fairly and transparently. The policy must be distributed to staff – unless workers are aware of their entitlements in line with the tipping policy, then the employer will have failed to meet its obligations.

Employers should have a clear and objective set of factors to determine how tips are distributed – these could include:

• Type of role/work (e.g., distribution between front of house and other workers)
• Basic pay (and how workers are engaged)
• Hours worked during period when tips are received
• Individual and/or team performance
• Seniority/level of responsibility
• Length of time served with the employer
• Customer intention

Failure to distribute qualifying tips to workers will be considered an unlawful deduction of wages and could result in litigation in the Employment Tribunal.

According to City AM, less than a third of hospitality companies in the UK are currently compliant with the rules. Employers should therefore ensure they put in place written tipping policies or update existing policies ahead of the rules coming into force in October.