Tips & Gratuities: Hospitality Sector

Since 2015, the government has been promising action on the way employers deal with tips and gratuities in the hospitality sector. After many delays the Employment (Allocation of Tips) Act 2023 was passed in May 2023 & will most likely become law in 2024.

Historically, tips paid in cash have always been allocated to staff. The same however, cannot be said of tips paid via cheque or debit cards/credit cards. In a survey carried out in September 2021 the Government noted that 80% of all tipping now takes place by card rather than cash &, under pressure from the hospitality sector, agreed the need for definitive legislation.

Under the new law, any monies paid on tips, gratuities & service charges will have to be passed on to the workers without any deductions being made by employers & no later than the end of the following month. So, any tips paid in June, must be allocated to the staff by no later than the end of July.  Any employer who currently pays tips through the payroll will not be able to deduct costs, for example employer NI, from the tip fund prior to allocation.

Agency workers are also covered by the new legislation & cannot be excluded when it comes to the allocation of tips. All workers will be able to raise a claim with a tribunal if they were unfairly allocated tips, or not paid tips on time. Any fine made can be as much as £5,000.

Employers will need to have a written code of practice when it comes to tips & this should be made available to all workers.

Please note that the new legislation applies only to employers who control or influence the allocation of tips. If the employer has no influence over how tips are passed to workers, then they are not bound by the new law.

For more information or guidance, please do contact your local Whitings LLP Office.

Disclaimer - All information in this post was correct at time of writing.