The Tipping Act, officially known as the Employment (Allocation of Tips) Act 2023, is designed to ensure that workers receive 100% of their tips in a fair and transparent manner, covering all forms of tips and service charges, whether paid by card or in cash. To achieve this, employers are mandated to follow a statutory code of practice that dictates the fair distribution of tips among staff members, protecting all hospitality workers, including those on zero-hour contracts and agency workers.
Key Dates and Application
The tipping law, which took effect in October 2024, applies to all hospitality businesses across the UK, with the exception of those in Northern Ireland. This legislation mandates that employers must establish and make available to all employees a written policy detailing their tip distribution procedures. Furthermore, employers are required to maintain detailed records of all tips received and distributed, including a comprehensive tipping record, with the expectation of further changes to the tipping law to be introduced in October 2026 via the Employment Rights Bill.
Understanding Tips and Service Charges
Tips and service charges are voluntary payments made by customers to reward good service and transparency. While service charges may be added to a customer’s bill, they must be clearly indicated and fair. The law dictates that employers must ensure all tips and service charges, whether received via cash or card payments, are distributed fairly among staff members without any deductions, except for the necessary tax and National Insurance contributions.
Qualifying Tips and Distribution
Qualifying tips encompass all tips and service charges received by the employer, excluding any that are not under the employer’s control, and must be allocated in a fair and transparent way that considers the role of each staff member in providing the service. These tips must be distributed fairly among all staff members, including agency workers and those on zero-hour contracts, with employers prohibited from withholding tips or making any deductions other than for tax and National Insurance.
Paying Tips and Income Tax
Employers are required to pay tips to workers by the end of the month following the month in which the tips were received, and while these tips are subject to income tax, employers must not make any deductions other than for tax and National Insurance. Workers are entitled to keep all their hard-earned tips without any deductions apart from tax and National Insurance, and employers must maintain accurate records of all tips paid, including the amount, date, and recipient.
Employment Tribunal and Disputes
Workers have the right to take their employer to an employment tribunal if they suspect their tips have been withheld or not distributed fairly, and the tribunal has the power to order the employer to pay the worker the owed tips plus any additional compensation. Employers are required to maintain a fair process for handling tip-related disputes and concerns, and workers can also seek guidance on employment rights and tipping laws from Acas.
Legislation and Hospitality Businesses
The legislation is applicable to all hospitality businesses in the hospitality sector , including restaurants, bars, and cafes, and requires employers to comply with the law by ensuring that all tips are distributed fairly among staff members. The primary goal of the law is to protect hospitality workers and ensure they receive all their hard-earned tips, necessitating that employers review their existing tipping policy to guarantee it aligns with the new requirements.
Implementation and Tipping Rules
Employers are required to implement the tipping rules, ensuring that all tips are distributed fairly among staff members, and these new regulations also mandate that employers keep accurate records of all tips received and distributed. Furthermore, employers must establish a written policy on tip distribution and make it available to all employees, as the law applies comprehensively to all tips, whether they originate from cash or card payments.
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