From 1st October 2024, a new law will come into effect, impacting the way that tips are distributed to your employees.
Photo by William Warby on Unsplash
How is Tipping Changing?
What does the Law Say?
This change comes as part of the Employment Rights Bill 2024 which also includes changes to basic worker rights, flexible working conditions and the proposed end of zero-hour contracts.
The new law defines a qualifying tip as any tip which is received from a customer directly by the employer or business. This includes any tip received as part of a service charge or through a card payment This new law does not apply to cash tips received by an employee directly however, if the business has a scheme to pool these cash tips together, then it is relevant to these changes. The act only applies to tips which the employer oversees, not all tips received within the business.
The priority of the new law is ensuring all tips are allocated fairly by employers. This does not mean that every tip must be spilt between every employee but each business should establish a clear set of rules regarding how tips are distributed. The new act also requires employers to ensure that agency workers receive their fair share of any tips received while they were at the establishment.
What Do You Need to Do?
The first thing employers must do is ensure that the total amount of all tips received by a business are distributed between staff. These tips must be distributed according to your own written tipping policy. According to the Act, this policy must clearly outline how you manage tips and share them with your staff. A copy of this policy must be available to all employees which can either be emailed or printed out and displayed.
Employers should consider the role of each worker, customer intentions and employee recognition when distributing tips. Businesses should also consult with their employees to determine what they view to be a fair system.
Secondly, all employers must keep a record of all tips received at their business and how they have been allocated. All records must be kept for up to three years from when the tip was received and employees can request to see their own record. An employee can make a written request to see their record once every three months.
These documents should be created prior to the introduction of these news laws on October 1st as businesses must be compliant immediately. It is important that you begin speaking with staff and implementing any changes at your earliest convenience.
These changes only apply if your business receives tips on more than an occasional and exceptional basis. While no legal definition is given for what constitutes an occasional basis regarding tips, if your business is in the retail, recreation, service or hospitality industries, you will likely need to adhere to all changes.
How will this Impact your Business?
Once the new law takes effect, employers will have a legal obligation to ensure all tips are fairly distributed. Not only does this mean you must have clear policies in place regarding tipping, you must not interfere with any existing informal business rules (e.g. workers keeping cash tips).
The new Act also allows employees to challenge their employer through tribunals to address instances where businesses fail to comply with these policies. This includes requesting access to any tipping records or to order employers to make a payment to one or more payments in correlation with their own tipping policy which they may have broken.
If employers are able to comply with these new changes by October 1st 2024, they should be able to create a fairer work environment whilst improving employee moral. Employees will feel that their hard work is being recognised more through the transparency regarding tips and will be more willing to go above and beyond when interacting with customers, knowing that their efforts will be better reflected in the tips they receive.
