The Department for Business and Trade's response to its consultation 'Distributing tips fairly: draft statutory code of practice' includes the implementation of the Code of Practice, and the Employment (Allocation of Tips) Act 2023. Workers in tipping industries will be protected from unfair employers pocketing money meant to go to them in recognition of good service.
Workers in tipping industries, such as Pubs, restaurants and hotels including agency staff, are to be further protected in their rights to tips given in recognition of good service. This includes a timely distribution of tips and no deduction of 'administration fees'. The Employment (Allocation of Tips) Act 2023 received Royal Assent on 2 May 2023 and all of these measures will come into force on 1 October 2024.
- Employers will be required to pass tips on to workers.
- Employers of businesses where tips are left more than occasionally will be required to have a tipping policy which they provide to workers and to have regard to a statutory Code of Practice when distributing tips.
- Workers will have a new right to request a copy of their Tipping record to enable them to bring a claim to an Employment Tribunal where they believe they are not receiving tips they should be.
The responses to the consultation showed a divergence of 'experience' between employers and employees.
Consultation 'Distributing tips fairly: draft statutory code of practice'
Part 1: About you Questions 1-5
These questions identified what kind of business or workplace respondents were responding on behalf of:
- Business owner or employer in a tipping industry (38%).
- Workers in the tipping industry (27%).
- Consumers (21%).
- Business representation organisations (17%).
- Trade unions or staff representative groups (2%), and ‘other’ respondents (5%).
Part 2: Distribution of tips Questions 6-15
- 85% of respondents said their workplace accepted tips via card as part of the bill payment.
- 58% accepted tips as cash on the table or handed to staff.
- Accepting cash in a tip jar (26%).
- By card separately from bill payment (19%).
- Through an app (7%).
- Through casino chips (3%) or ‘other’ (7%).
Whether the workplace automatically adds a tip (sometimes referred to as a ‘service charge’) to customers’ bills?
- Around two-thirds (65%) of respondents said yes.
Are tips in the workplace pooled before being distributed (also known as a ‘tronc’ system) and whether distribution of tips was controlled by the employer, a worker or group of workers or by a third party?
- 45% reported their workplace used an employer-operated tronc.
- 20% reported a third-party-operated tronc was used.
- 17% reported a workeroperated tronc was used.
- 4% reported the employer distributed tips without pooling.
- 3% reported tips went to workers with no pooling or employer influence and 10% reported another method was used.
Seven per cent said they don’t currently pass on tips and 13% reported another practice (several being holding back tips to distribute later in the year or to pay for staff parties).
Nine per cent of workers reported not currently receiving tips and 20% reported another practice (with some reiterating here that tips were not currently passed on).
The majority (77%) of businesses pay tips out as part of payroll.
Government response
The government accepted that there was a wide range of ways to tip and the new rules shouldn't interfere with that. It observed that the use of tipping apps had a greater presence than expected and that where a customer tips using an app which pays out to workers directly, and bypasses the employer, is out of scope for the legislation and the Code of Practice.
Some correspondents had written about the practice of automatically adding tips to bills, which is not uncommon. While the government does not have a view on this business practice, it is clear that these tips must be passed on to workers the same as all other tips.
Just under half of respondents said tip distribution in their workplace was controlled by the employer, supporting the need for legislation to protect workers from unfair employers. The legislation requires employers to pass tips on to workers by the end of the month following the month in which the tip was left.
Part 3: Allocation of tips Questions 16-26
These questions asked about how tips are currently divided or allocated between staff in the workplace.
When asked if they had ever sought agreement from or consulted their staff on the distribution and allocation of tips,
- 57% of employers reported that they had done this,
- 32% reported they had not.
- 11% were unsure.
However, 73% of workers reported their workplace had not sought agreement from or consulted staff and only 27% had.
When asked if agency workers, where engaged, are currently treated the same way as directly engaged staff for purposes of allocation of tips
- 40% of employers reported that agency workers receive no share or a smaller share of tips.
- 17% of workers reported that agency workers currently receive no share or a smaller share of tips.
Government response
Concentrating on agency workers, the government observed that a customer leaving a tip will not know whether the person serving them is directly engaged or engaged through an agency. It is therefore important for employers to consider agency staff in the allocation of tips and in most cases be able to pass tips on to agency workers. There have been some clarifications to the Code of Practice around agency workers where the ‘employer’ for a directly engaged worker is the ‘hirer’ for purposes of an agency worker. Further clarification was given to employers’ need to give due consideration to agency workers when determining the allocation of tips.
Part 4: Transparency Questions 27-30
Most respondents (77%) reported that they were aware of a tipping policy in their workplace, whilst 23% said that they were not aware of one. When asked if the workplace made the tipping policy available to staff, 61% of respondents said yes, 21% said no, and 18% were not aware of the workplace having a tipping policy.
When asked if the workplace currently passes all tips on to staff,
- 50% reported that it did,
- 21% reported that tips were passed on after an administrative charge was taken.
- 13% reported tips were passed on after other deductions were made.
- 11% reported no tips were currently passed on and 5% reported some other arrangement was in place.
Government response
- The legislation requires employers in tipping industries to have a tipping policy and to provide it to their staff.
- Some businesses report passing on tips only after taking out an administrative fee or other deduction. This is not allowed under the legislation and the government has always been clear that administrative fees are a cost which must be borne by the business.
Part 5: Implementation Questions 31-34
These questions are about how the changes in the legislation will be implemented in respondents’ workplaces.
When asked which part of the Employment (Allocation of Tips) Act 2023 would take the most time to implement:
- 42% answered ‘measures on distribution (how and when tips are collected and passed to workers)’
- 49% answered ‘measures on allocation (how tips are divided between workers)’.
- 53% answered ‘measures on transparency or record keeping’.
- 18% reported they were not sure and 5% gave another answer.
Government response
The government noted that the response from workers on their confidence levels in engaging their employer on tipping practices is discouraging despite the industry's optimism.
It emphasised that the legislation does not allow for administrative or similar fees to be deducted from tips before they are passed on to workers. Additionally, ‘smoothing’ of tips or retaining them for periods of time is not allowed under the legislation. Tips must be passed on to workers in full and promptly, accounting for existing tax and social security arrangements.
Useful guides on this topic
Tips, gratuities and troncs
How are tips, gratuities and troncs taxed? What are the rules for National Insurance Contributions (NICs)? What impact will the Employment (Allocation of Tips) Act 2023 have?
Record-keeping & tax: What, how and until when?
How long do you need to keep your books and records for tax? Record-keeping for Income Tax (IT), PAYE, Capital Gains Tax (CGT), VAT and Corporation Tax (CT). What if you lose your records?
External links
Updated draft Code of Practice on the fair and transparent distribution of tips
