New rules on allocating tips at work: What employers need to know

New legislation called the Employment (Allocation of Tips) Act 2023 takes effect from the 1 October 2024 and will regulate the allocation and distribution of tips.

This new law will affect any business that accepts and manages tips – primarily impacting on the hospitality and service sectors. All in-scope tips, gratuities and service charges paid by customers on or after 1 October 2024, along with some tips received by workers, will be subject to the new rules.

What are the new rules?

Under the new legislation, an employer must ensure that:

• the total amount of the qualifying tips*, gratuities and service charges paid at a place of business is allocated fairly between workers (and agency workers) at that place of business
• all tips are paid to workers by the end of the month following the month in which the tips are received from customers (for example, if a customer leaves a tip on 23 October, it must be distributed by 30 November at the latest)
• no deductions (including administrative charges) are made from tips, other than any tax deductions required by law.

*Qualifying tips are those that the employer receives, or exercises control or significant influence over. Tips received and kept by individual workers, with no employer involvement, are not in-scope.

Requirement to keep a written policy

If tips are paid on “more than an exceptional or occasional basis”, employers must have a written policy on how tips are dealt, and this policy should be made available to workers.

There is also a requirement for these employers to keep records of how each tip has been dealt with for a period of three years from the date when the qualifying tip was paid.

Workers have the right to make written requests to view the tipping records of the business for a period dating back up to three years, provided they worked for the employer for the full duration of the requested period.

Where can I find further guidance?

Code of Practice on fair and transparent distribution of tips

The government has issued a Code of Practice that provides guidance and suggestions to employers on how to allocate tips fairly.

The four key areas covered by the Code include:

• identifying qualifying tips and qualifying workers
• the factors and methods relevant to fairness
• what the requirements for transparency are
• how to address problems and disputes.

A key recommendation in the Code is that “employers should consult with workers to seek broad agreement in the workplace that the system of allocation of tips is fair, reasonable and clear.”

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