Code of Practice on Distribution of Tips

In previous updates, we outlined that the Employment (Allocation of Tips) Act 2023 (“the Tipping Act”) received Royal Assent in May 2023 and will come into force on 1 October 2024.

In May 2024, the House of Lords approved the Government’s draft Code of Practice on the fair and transparent distribution of tips (“the Code of Practice”). It applies to all workers who receive tips as part of their employment. The Code of Practice will come into force on 1 October 2024. We have no reason to believe the change of Government will affect this.

The Code of Practice has four key sections (with an additional section which is a glossary of terms):

Scope: qualifying tips and workers
Fairness: factors and methods
Transparency
Addressing problems

1) Scope: qualifying tips and workers

The Tipping Act applies to all workers but not to the genuinely self-employed. The Code of Practice stresses that the principles of fairness must be adhered to where there is a mix of different types of staff in the same location, such as permanent staff, agency workers and zero-hours workers.

The Tipping Act also includes a definition of qualifying tips and the Code of Practice offers some observations on this, such as when cash tips will fall into this category and that non-monetary tips, such as casino chips, may also be covered.

Cash tips which the worker can keep without their employer’s involvement or control would fall outside the Tipping Act and Code of Practice.

2) Fairness: factors and methods

Where qualifying tips, gratuities and service charges are paid on "more than an occasional and exceptional basis” an employer must have and share a written tipping policy which outlines key principles of fairness and factors relied on when allocating tips. The Code of Practice gives the following non-exhaustive list of factors which an employer may wish to consider when determining a fair allocation of tips:

the type of role or work (for example, front-of-house and/or back-room workers);
basic pay;
how the workers are engaged;
individual and/or team performance;
seniority and/or level of responsibility;
length of service; and
customer intention.

Employers must take care to avoid any discrimination when determining how to allocate or distribute tips. The Code of Practice suggests that employers regularly review their allocation of tips and consult with the workers to make sure their policy is fair, clear and reasonable but it does note that an employer may have legitimate reasons why some receive a greater tip than others.

The framework the employer sets for its operation must align with the principles of fairness. Tips might be distributed via an independent “tronc” - if an employer does this and has a reasonable belief that the tronc operates independently and fairly, the employer will be regarded as complying with the Code of Practice. If an employer becomes aware of an independent tronc master acting in an unfair or improper manner, they must act. If they do not act, the employer may be regarded as having failed to comply with the Code of Practice and could face claims in the employment tribunal.

Employers must distribute all tips to workers by the end of the month following the month in which the tips were paid by customers.

3) Transparency

Individual workers must be aware of their entitlement to tips as set out in the written tipping policy and so they can challenge their employer’s tipping policy or its implementation if they think it is unfair.

Employers can decide how to disseminate the written policy to their staff but we would recommend providing it by email, uploading it to the employer’s intranet or providing a hard copy to staff. There is no requirement to share the policy with customers.

Employers should also keep a tipping record for 3 years (starting from the date the tip was paid) of every qualifying tip and the amount allocated to every worker. It is important that the tipping policy and the tipping record are easily accessible to workers and can be provided by the employer on request.

4) Addressing problems

Fair procedures must be in place to resolve any questions or issues raised by workers in relation to the tips. When dealing with questions or queries, employers should give equal weight to agency workers’ and their permanent staff.

A failure to fairly allocate tips or comply with obligations regarding a written policy or written records could result in a worker making a complaint to an employment tribunal. If the complaint is successful, the employment tribunal:

must make a declaration regarding the employer’s failure;
could order the employer to pay the worker compensation of up to £5,000;
could order the employer to comply with the relevant requirement; and
could order the employer to deal with qualifying tips, gratuities and service charges in accordance with the Tipping Act.

Whilst, a failure to comply with the Code of Practice will not give rise to a cause of action in itself, the Code of Practice will be admissible evidence in the employment tribunal and will be taken into account when the employment tribunal is considering its judgment.