Understanding the New Employment (Allocation of Tips) Act 2023 for fairer payroll practices

The hospitality sector is set to undergo a significant transformation following the passage of the Employment (Allocation of Tips) Act 2023.

This legislation, which received Royal Assent on 2 May 2023, is expected to come into effect in 2024.

It introduces new rules for the allocation and payment of tips, gratuities, and service charges, with the aim of promoting fairness and transparency.

Businesses in the hospitality sector need to be aware of these changes and consider how they will impact payroll management.

Understanding the legislation

The Act applies to both public and non-public places of business. A public place of business is defined as a location where there is direct, face-to-face interaction between customers and workers.

Non-public places of business, on the other hand, are those where the payment of tips, gratuities, and service charges to workers occurs because the employer operates one or more public places of business.

The legislation covers not only employees but also agency workers.

It includes the allocation and payment of tips, gratuities, and service charges processed through a tronc, a separate organised system for managing and distributing these payments.

Employee entitlements

Under the Act, workers are entitled to receive tips, gratuities, and service charges that they qualify for.

Employers are required to ensure that all tips, gratuities, and service charges are allocated fairly and paid to all workers.

The payment must be made no later than the end of the month following the month in which the customer paid it.

If qualifying tips, gratuities, or service charges are paid on more than an occasional basis, the employer must have a written policy on how it deals with them.

This policy must be made available to all employees, and any amendments to the policy must also be communicated to all employees.

Record keeping and compliance

Employers are required to keep records of how every qualifying tip, gratuity, and service charge is paid.

These records must be maintained for a three-year period beginning with the date on which the payment was made.

Employees or workers may make one written request in any three-month period for records of qualifying tips, gratuities, and service charges.

The employer is required to provide these records within a reasonable time, provided that the disclosure does not violate data protection laws.

Enforcement and penalties

If an employer or agent fails to comply with the regulations, an employee can file a complaint with an employment tribunal.

Complaints can be made when an employer or agent fails to comply with the requirements to set out when and how to make payments or an employer fails to comply with its obligations for having a written policy and maintaining records.

If an employment tribunal finds in favour of the worker, it may order the employer or agent to pay an amount, not exceeding £5,000, to compensate for any financial loss.

The Employment (Allocation of Tips) Act 2023 will see a significant shift in the way tips, gratuities, and service charges are managed in the hospitality sector.

At Moore Thompson, our expert team of payroll professionals can handle these changes and manage all aspects of payroll for your business. If you’d like further information, please contact us today.