The Employment (Allocation of Tips) Act 2023
Further to a number of reviews and consultations over the years, it will soon be made illegal for an employer to withhold tips from its employees. The Employment (Allocation of Tips) Act 2023 received Royal Assent in May 2023 and is therefore expected to come into force in early 2024.
At present, service charges can be used to cover certain business expenditure such as credit card charges, payroll costs and other administrative costs in overseeing the distribution of service charges to employees. The new law on tips will make it illegal for employers to make any deductions from tips from any method, and enabling all tips made by customers to be distributed to staff.
Changes for employers
The new law will also require business’s to comply with additional measures such as:
- Providing a written policy on tips outlining how these are managed and distributed to staff
- A statutory Code of Practice to ensure fairness and transparency of tips
- Comply with the new measures and rights gained by employees to be able to request information on an employers tipping record
The new changes to tipping could inevitably impact cashflow where previous to this certain costs may have been offset against tips and so the level of this would need to be considered. Potentially employers may feel an impact and may need to consider whether to apply service charges in the future or to increase prices as a result.
The new legislation would require all employers whose staff receive a tip to be compliant and up to date with current practice in order to avoid potential employee disputes on tipping and being taken to an employment tribunal.
Compensation to employees on poor tipping practices and fines will also be another factor in ensuring the new rules are complied with.
The new changes to tipping encourage an existing method to be used as a way of managing tips. Under this scheme, tips are pooled together and shared out to employees. Under the new rules the methodology on how tips are shared out would need to be clearly defined and transparent.
There are some rules and possible pitfalls to administering such a system that should be considered. Income tax will still be applicable and suffered on the tips to the employees however potentially no National Insurance contributions would be suffered. The employer must not directly or indirectly have an involvement in the payment of tips or have any say in the split allocation of these.
To set up a tronc, you first need to find someone who is willing to be appointed as a “troncmaster” – This is often an employee. The troncmaster takes responsibility for collecting of all staff tips and service charges and making sure they are distributed to staff based on the determined policy criterion.
The individual will be responsible for making sure employees are paid their money, which is usually done via the payroll.
For any further help and advice please contact Alex Skinner, based at our Historic Dockyard branch.