From 1 October 2024, new legislation under the Employment Rights Act 1996 changed how employers handle tips, gratuities, and service charges. The goal is to ensure fairness and transparency, with clear guidelines on how these payments are distributed among workers and for the Secretary of State to issue a Code of Practice to support the implementation of these rules.
So, What is Covered?
The legislation applies to ‘qualifying tips, gratuities, and service charges’, which includes:
- Employer-received tips – tips received by the employer directly.
- Worker-received tips under employer control – tips given to workers that are either controlled by the employer or pooled together with other tips under employer control.
How Tips Must Be Dealt With
Under the new rules, employers must ensure that all qualifying tips, gratuities, and service charges are allocated fairly among workers at the place of business.
- If tips are given directly to the employer, they must be paid to workers in full.
- Employers can arrange for an independent tronc operator to manage tip distribution, as long as it is done fairly.
In short, workers will receive all tips, and employers are banned from withholding any part of these payments – whether they are made by cash or card.
This law is expected to positively impact over three million service workers across industries in England, Scotland, and Wales, especially those in restaurants, cafes, bars, pubs, salons, and taxi services. If an employer fails to comply and retains tips, employees can bring claims to an employment tribunal.
Timely Payments
Employers must allocate tips no later than the end of the month following the month in which they were received from customers. This ensures workers are paid promptly.
There are special rules for agency workers.
Written Policy Requirements
For businesses that regularly receive tips, gratuities, or service charges, a written policy is mandatory. A written policy for a place of business must include the following information:
- Whether the employer encourages customers to pay tips, gratuities and service charges at the place of business; and
- How tips, gratuities, and service charges are fairly allocated between workers.
Employers must make this policy available to all workers at the place of business, ensuring transparency and compliance with the new legislation.
This new law represents a significant step toward fairer practices in the service industry, providing workers with greater rights and protections regarding the distribution of tips and gratuities.
Record-Keeping Requirements
As part of the updated Employment Rights Act 1996, employers are now required to maintain detailed records of how qualifying tips, gratuities, and service charges are handled. These rules apply to businesses where tips and service charges are paid on a more than occasional and exceptional basis. The employers must:
- Create a record: this should document how every qualifying tip, gratuity and service charge paid at, or otherwise attributable to, the place of business has been dealt with; and
- Maintain the record for three years: this period begins from the date the tip, gratuity, or service charge was paid by the customer.
Enforcement and Code of Practice
The legislation also includes enforcement provisions, with penalties for businesses that fail to comply with these record-keeping and tip distribution rules. A Code of Practice has been issued to promote fairness and transparency in how tips are managed. Employers should familiarize themselves with the Code, which can be accessed via the UK government website at Code of Practice.
The Way Forward
For many businesses, these changes may require updates to current systems and policies. Employers will need to ensure they are compliant with the new regulations and have appropriate processes in place to manage tips, gratuities, and service charges fairly.
If you’d like to learn more about how we can help you or your business, take a look at our services. Whether you’re looking for expert advice, tailored solutions, or support to achieve your goals, we’re here to make a difference.
If you have questions or would like to discuss how these changes impact your business, please don’t hesitate to contact us on 01904 655202, or email enquiries@hghyork.co.uk