Employers unable to withhold tips from 2024 as bill reaches royal assent

With £200 million more expected to reach workers, organisations are reminded to create gratuity policies, keep better records and remember the consequences of unlawfulness

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From 2024, employers will be banned from withholding tips from staff after the Employment (Allocation of Tips) Act 2023 received royal assent earlier this week (2 May).

According to government analysis, an estimated £200m is held back from staff by companies withholding their tips. This practice will now become unlawful.

With approximately two million workers across hospitality, leisure and services expected to benefit from the overhaul of tipping practices, some believe the new law will help with staffing issues in these sectors. 

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Kevin Hollinrake, business and trade minister, said the overhaul would improve fairness in pay: “This new law will ensure that staff receive a fair day’s pay for a fair day’s work – and it means customers can be confident their money is going to those who deserve it.”

Trade body UKHospitality has promised to work with affected stakeholders in order to prepare for the legislation’s implementation.

However, Kate Palmer, HR advice and consultancy director at Peninsula, explained that businesses must start to prepare for the changes as soon as possible – especially employers who currently keep staff tips, as this can hit their finances.

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Palmer advised that it’s also a good time for employers to remind themselves that tips shouldn’t make up worker pay to national minimum wage levels and that consequences can include an employment tribunal with compensation of up to £5,000 if tipping practice is unlawful. 

There will also be a requirement to fairly allocate tips (including with agency workers), which may mean staff do not get to keep the tips they individually earn. This change will be guided by a yet-to-be-released statutory code, but Palmer said communication from employers will also be important to preclude any potential conflict.

“Once a fair allocation system is devised, it’s important to communicate this clearly and transparently to workers in good time before the change so that those workers can see their employer is aware of their new obligations and is acting in accordance with them,” she said.

HR and legal experts previously told People Management that fair allocation will mean not sharing tips between different outlets of the same business and working with payroll companies to ensure tips are in take-home pay.

Deductions from tips for breakages and accidents could also be seen as unfair or immoral, too. 

As the new law will require employers to have a written tips distribution policy, which states whether they require, encourage or discourage tipping and details how they will be distributed, Carl De Cicco, employment law partner at Reed Smith, advised creating this as well as better record-keeping for tips, as employees can ask to see this.

This is because employers that regularly receive tips will have to create a record, kept for three years, of how a tip was dealt with and understand how tips can be shared between non-public and public-facing staff.

De Cicco said that employers can also demonstrate compliance with new legislation by appointing, if appropriate, an independent tronc operator to help distribute tips – which could be crucial as staff can complain about tip allocation for up to 12 months after an issue.

“Employers should ensure gratuities are distributed by, at the latest, month end and should have a clear, accessible policy about tip allocation, good records of who needs to be paid tips and a strong reporting system,” he added.

“Ideally, a member of management or payroll should have the maintenance of these records as part of their job description to ensure compliance and there should also be a written policy [if an employer qualifies to write one].”