Following years of campaigning by trade unions and hospitality workers, a new tipping law was passed last month that will ensure service charges go directly to the employees who receive them.
The Employment (Allocation of Tips) Act 2023, which received Royal Assent in May, will come into effect in 2024 and is expected to put £200 million back into the pockets of workers each year.
The new law seeks to address the long-standing issue of employers deducting service charges from tips and gratuities, leaving workers with less than customers may believe they are receiving. Under the new legislation, businesses will be forbidden from withholding any part of the tips, gratuities, or service charges paid by customers, and must ensure that the full amount goes directly to the workers who provided the service.
Gill McAteer, Director of Employment Law at Citation For years, there has been concern about practice of some employers of withholding tips or service charges paid by customers to recognise great service and hard work. The increase in card payments is thought to have compounded this issue, but last month Parliament finally passed new laws which will bring this practice to an end. In a move which the government claims will see over 2 million workers boost their income by £200 million a year, the Employment (Allocation of Tips) Act 2023 will implement 2 objectives, firstly to require employers to pay over to workers all tips which are either paid to them directly or over which they have control, without any deductions. Secondly, they will be required to put in place a fair system for distributing tips between workers and to have a written policy clearly setting out these arrangements. Employers will be required to make their tips distribution policy available to all workers (not just their employees) and they will be required to keep records of all tips received and distributed for a period of at least 3 years. Workers will have the right to request these records and when such a request is received, employers will have to respond within 4 weeks.
The government will also be publishing a Code of Practice which will spell out for employers the principles of fairness and transparency which they should bear in mind when deciding on their tip distribution system.
Penalties for employers who do not comply with the new rules will include orders to compensate workers for the financial loss attributable to the breach up to £5000 (this could also include people who have not made a claim). However, workers will need to wait a little longer to see the benefit of these new rights because although the Act came into law in early May, the government has not yet confirmed the date it will come into force, nor have they published the regulations which will set out in more details how these rules will be applied. It is expected that the new rules will are likely to come into force next April.
