Tipping Act comes into force

The much-anticipated Employment (Allocation of Tips) Act 2023 (the Tipping Act) comes into force on 1 October 2024 for England, Scotland and Wales.

The Act received Royal Assent in May 2023, employers should have had time to prepare for its implications which include:

• Allocating all tips, gratuities and service charges (referred to collectively as tips) paid to employer businesses to its workers within a month of the month-end in which the tip is received without any deductions other than tax. 
• Ensuring the distribution of tips between workers is fair and having regard to a statutory code of practice in fulfilling this obligation.
• Having a written policy for the treatment of tips available to all staff.
• Retaining a record for three years of the tips and their distribution that is available to workers on request.

Tips are always subject to Income Tax. Liability for NICs varies depending on the arrangement in place. The question is how liabilities are collected and by whom. When a restaurant has a policy of pooling tips, a Tronc arrangement may be in place so that tips are pooled and divided up by someone other than the employer. 

The Tipping Act confirms an employer is to be treated as having ensured tips are allocated fairly where it arranges for qualifying tips to be allocated through a tronc and no unauthorised deductions are made from this distribution. Care is needed to maintain the required independence from the tronc.

Employers fall foul of the rules where they refer to it in employment contracts and job adverts, for instance, and advice from both a legal and a tax perspective is important. Some businesses have deducted genuine administration costs from the distributions made. This is not permitted under the new Act. Remedies may be imposed by the Employment Tribunal where employers fail to comply.

The main priority is for employers to ensure they fully understand what currently happens within the business, who decides the allocation of tips, do they use agency workers, and if there is a tronc in place, that this is compliant.

Tax trivia: This act was a long time in coming: it dates back to a consultation process that began in May 2016.

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?

Hospitality sector needs to prepare for 'fair tips' rules
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.

External link 

New Code of Practice on workers' tips - are you ready for 1 October?