Is your business subject to a new tip law?

Starting 1 October 2024, the UK law requires that employers distribute all tips to their staff equally, without retaining any portion for themselves.

If your company receives tips from customers, the first thing you should consider is whether these tips are “qualifying tips”. This includes both tips received by the employer and certain tips given directly to workers. For example, a service charge added to a restaurant bill is considered an employer-received tip, while a cash tip handed directly to a waiter by a customer is a worker-received tip.

A qualifying tip refers to any tip over which the employer has some control, and these are the tips covered by the law. For instance, if cash tips are collected by the employer and then distributed to the staff, this is considered a worker-received tip that qualifies under the legal definition of a “qualifying tip”.

You should put in place and always refer to the code of practice on the fair and transparent distribution of tips before deciding on an equitable allocation. The code outlines various factors our clients should take into account, such as the type of role or work, the employees’ length of service, or the customer’s intention.

After determining a fair allocation of tips, employers must consult with their workers to achieve a general consensus. Once a broad agreement is reached on the fair distribution of tips, the employer must create a written policy that details the process.

Some employers are not required to have a tips policy. However, employers who only receive qualifying tips on an “occasional and exceptional basis” must provide their workforce with a statement explaining that they are not legally obligated to produce a policy, long with the reason why. Tips received on a monthly basis are unlikely to be considered “occasional and exceptional”.

Employers who have no control over their employees’ tips are not obligated to have a policy or statement. Although it is not a legal requirement, it may be wise to communicate this exemption to workers. Therefore, unless our client permits all employees to keep all their tips at all times, significant changes will need to be made to their documentation.

Employers required to have a tips policy must also keep a tipping record to document how each received tip has been handled. This record must be maintained for three years, starting from the date the qualifying tip was given.

Staff can submit a written request to access the tipping record, but there are specific regulations regarding this. For instance, a worker is only permitted to view the records that pertain to them, not those of other employees.

And lastly, please note, it is crucial to ensure everything is done correctly, as workers can file claims with an employment tribunal if there are any discrepancies.

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