Making sure your business is compliant with the Allocation of Tips Act
The Employment (Allocation of Tips) Act 2023 has officially come into force, changing the way tips are processed for hospitality businesses across England, Scotland, and Wales.
This new law ensures that workers keep 100 per cent of their hard-earned tips, gratuities, and service charges, without deductions made through payroll.
Why was the Act introduced and what impact will it have?
The Act and the accompanying Code of Practice were introduced to crack down on businesses that were withholding tips from their employees.
While most employers already pass tips on to their staff, this new legislation ensures that all businesses do the same, creating a level playing field across the industry.
The Government estimates that these changes will put an extra £200 million into the pockets of hospitality workers each year.
Not only does this boost the income of your employees, but it also builds trust between your business and your customers, who expect that their tips go directly to the people who provided the service.
What do hospitality businesses need to do to comply?
Hospitality businesses should make sure they are distributing tips, gratuities, and service charges in a way that meets the requirements of the law. This means:
- Passing on 100 per cent of tips to your staff, without making any deductions
- Paying tips by the end of the month following the month in which the customer paid the tip
- Allocating tips fairly and ensuring that every worker receives their due share
- Keeping detailed records of how tips are distributed and ensuring that you can provide this information if requested
- Creating a written policy on how tips are managed and distributed, if required for your business
Failure to meet any of these obligations could result in serious consequences.
The penalties for non-compliance
If you fail to comply with the Act, your business could face financial penalties, employee grievances, and legal claims.
Workers now have the right to bring claims to an employment tribunal if they believe you have:
- Not allocated tips fairly
- Not paid tips by the required deadline
- Failed to keep proper records of tip distribution
- Neglected to maintain a written policy on tips where required
If a tribunal finds your business in breach of the law, they can order you to:
- Revise the allocation of tips and make payments to any worker who is owed money
- Pay up to £5,000 in compensation for any financial loss suffered by the worker due to your breach
- Face public declarations about any unfair practices or errors made in handling tips
These penalties can harm your finances and also damage your business’s reputation in a highly competitive industry.
The importance of complying with the Act
Beyond the legal obligations, complying with the Act shows your commitment to fairness and transparency in your business.
Ensuring that your workers receive their rightful tips can improve staff morale, reduce turnover, and improve your reputation among customers who care about fair treatment.
Staying compliant also protects your business from costly legal battles and fines, allowing you to focus on delivering the best service to your customers.
Contact us today for advice on ensuring your payroll complies with the Act and avoiding the risks associated with non-compliance.