For many hospitality workers, tipping is more than just a gesture of appreciation. It can be a lifeline in an industry known for low wages and long hours.
However, the way tips are distributed within the Hospitality sector has always been a hotly debated issue, especially in recent years, with reports of unfair practices and withheld earnings.
This is where the Fair Tips Act comes into play – a new legislation set to transform the way tips are handled in the United Kingdom. The goal is to guarantee a fair allocation of tips, making it illegal to withhold tips from eligible workers.
The Employment (Allocation of Tips) Act 2023, which received Royal Assent on 2 May 2024 and comes into effect on 1 October 2024, signals a shift towards greater transparency and fairness in tipping practices in the Hospitality industry.
For those who need to get acquainted with it, here are five quick hits to get you up to speed.
1. 100% of tips and service charges must go to workers without any deductions
Under the new law, employers must ensure that all tips go directly to their hospitality staff without deductions (except required taxes). This means employers are strictly prohibited from negotiating a worker’s salary (often minimum wage) for a share of the tips or deducting part of the tips to cover admin costs.
Tips that employers directly receive or have control over are considered qualifying tips. This covers cash tips collected and distributed by the employer, as well as tips via card payments or electronic methods like mobile apps. Non-monetary tips such as vouchers are also covered.
Customer tips given directly to a worker without employer control are outside the scope of the Tipping Act.
It’s also important to note that employers can no longer keep tips in a reserve fund. All tips have to be paid to workers by the end of the month following the month in which they were received. For example, if a customer leaves a tip in May, it has to be paid to staff by the end of June at the latest.
As an employer, you can distribute the tips you receive directly to your employees on their next pay cycle. But you can also use a Tronc scheme where either a staff member or an independent Tronc operator handles the fair and transparent distribution of tips.
2. Employers must ensure fairness in the distribution of tips
Under the Fair Tips Act, employers must ensure a fair distribution of tips among their workers. This means that all staff that contribute to a positive customer experience, whether they're in the front or back of the house, should have equal opportunities to receive their share of tips.
The law also clarifies that besides permanent staff, agency workers and zero-hour contract workers are also entitled to tips.
You may be wondering: “But what is considered fair…?.” Well, that is up to the employers to determine based on clear and objective factors. The Code of Practice lists some factors you can consider (the list is illustrative rather than exhaustive):
- Type of role/work (e.g. distribution between front-of-house staff and backroom
- 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
So, fairness in tipping boils down to making sure everyone gets their fair share, but that doesn't necessarily mean splitting the tips evenly among all workers.
The Code of Practice also emphasises the importance of consulting with your team to make sure everyone agrees on what is considered fair when it comes to tip distribution.
3. Employers must have a written policy on how tips are dealt with
The new law is all about fairness and transparency. As an employer, you have the legal obligation to have a written tipping policy in your workplace, written in plain language and accessible to all team members.
According to the Code of Practice, “the written policy should include how tips are accepted, how tips are allocated and distributed, and what steps the employer takes to ensure tips are handled fairly and transparently in accordance with the Tipping Act.”
“the written policy should include how tips are accepted, how tips are allocated and distributed, and what steps the employer takes to ensure tips are handled fairly and transparently in accordance with the Tipping Act.”
Business owners are free to choose how to share the policy with staff. They can provide it electronically (through email, for example) or as a physical written document. The Code also states that you are not required to share the tips policy publicly.
The policy helps to prevent misunderstandings or disputes regarding tip distribution and ensures that all parties are aware of their rights and responsibilities.
4. Workers must have access to tipping records
Under the new tipping law, employers must maintain a tipping record detailing “all qualifying tips received by the employer at the place of business, and the amount allocated to each worker”. The record must be maintained for a three-year period, beginning with the date on which the tip was paid.
Each worker has the right to make one written request in a three-month period to view the tipping record dating back up to three years (as long as they worked for the employer for the full duration of the requested period).
The information you have to provide to the worker must include the total amount of tips you received and the amount paid to that worker, but not the specific amounts paid to other workers.
5. Workers can bring a claim to the Employment Tribunal if rules are not followed
It used to be easier for employers to bypass rules and distribute tips unfairly without facing consequences, but those days are about to end.
If business owners don't follow the rules in the Fair Tips Act, workers have the right to bring a claim to the Employment Tribunal. This means if there's any unfair distribution of tips, employees can take action to resolve the issue.
Workers have 12 months to make a claim, although exceptions may apply if it isn't reasonably possible to make the complaint within that time frame. If the tribunal agrees with the complaint, they can order a correction action and/or compensate the affected worker up to £5,000.
And of course, we don’t even have to mention the PR damage that non-complaince can bring to hospitality businesses. We all know how quickly one can go viral for all the wrong reasons...
Are you Ready for The New Tipping Law?
Businesses have until October 1st to guarantee full compliance with the new tipping rules. This means reviewing current practices, updating policies, and implementing any necessary changes to business operations to align with the Fair Tips Act.
We know that your plate is already full and that this may impact your cash flow. The Hospitality industry is facing so many financial pressures right now, and implementing changes to comply with the new tipping legislation might seem like an additional administrative burden.
But staying compliant helps avoid trouble down the line and creates a more motivating work environment for your hard-working staff.
At Outmin, we’re by your side every step of the way. We specialise in helping businesses like yours streamline their financial operations – from bookkeeping to payroll, tax, and weekly financial reporting – and stay compliant with evolving regulations.
We also have a new FAQ Handbook with the answers you need about the Fair Tipping Act. Click the image below to read the guidebook now.
If you’re curious about how we can help you prepare for the new tipping law and upgrade your accounting function to gain a competitive edge, feel free to chat with us!
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