Legal News | 13.08.24

Tips, Service Charges and Gratuities

The Employment (Allocation of Tips) Act 2023 (The Tips Act) will come into force on 1 October 2024. The Tips Act was introduced to protect those who work in the hospitality industry from exploitative practices, including where an employer would use a proportion of tips to supplement the wages for those who work in the kitchen. The Tips Act inserts new sections 27 C-Y into the Employment Rights Act 1996 (ERA) and applies in England, Wales and Scotland.

Who does the Tips Act protect?

The Tips Act applies to anyone who is classed as a worker under the ERA. This means anyone that works under an employment contract (express or implied and in the case of an express contract, could be written or oral) where the individual agrees to perform work or services for the employer. However, the Act also applies to ‘eligible agency workers’.

What is classed as a ‘tip’?

The Tips Act applies to “qualifying tips, gratuities and service charges”. This includes amounts paid by a customer directly to the employer, by using a credit or debit card and tips received by the worker but are subject to the employer’s control (for example where the employer requires tips are shared between the workers). Deductions for charges, such as for use of a credit card, cannot be deducted from the ‘tip’.

What protections does the Tips Act provide?

An employer must now ensure that the total amount of qualifying tips received is distributed fairly between the employer’s workers and that the distribution is paid to the workers by the employer by no later than the end of the month following the month in which the customer made the tip. For example, if a customer left a tip on 2 August 2024, the employer must pay the fair allocation of that tip by the end of September 2024.

Where an employer has multiple places of business, for example a chain of restaurants, the tips at a particular restaurant can only be distributed among workers at that place of business and not other locations.

Can my employer include a term in their contracts stating that the Tips Act does not apply?

No. The Tips Act specifically prohibits ‘contracting out’ of the fair allocation of tips. Any clause in a contract with their staff seeking to do this, will be automatically void.

What else does the Tips Act do?

The Tips Act offers several other protections. Briefly, these are:

• Further protection around unlawful deductions from wages.
• A requirement that an employer has a written policy detailing how it deals with tips, if they are paid on a more than an occasional and expectational basis.
• A requirement that an employer keeps records of how tips have been dealt with in accordance with the Tips Act, for at least 3 years from the date on which the tip was paid.
• The right for workers to request information about how tips are paid.
• The right for workers to bring a claim if their employer has failed to comply with their obligations. Such claims can be brought up to 12 months after the alleged failure to comply took place.

If you would like more specific advice about the above, or if you have any other queries, then please contact:  01380 733300 | commercial@wansbroughs.com