The employment (allocation of tips) act 2023 – are you ready?

There is currently no employment law in place that dictates how UK businesses should distribute their tips, if at all. The Government has introduced the Employment (Allocation of Tips) Act 2023 to tackle this, which will now come into force as of 1 October 2024, rather than the previous date of 1 July 2024. This act will ensure that all tips are fairly distributed to staff.

What does this mean for employers? Jake Elms, Payroll Operations Manager at Westcotts, explains.

The Employment (Allocation of Tips) Act 2023

Those who leave tips often do so due to the excellent service they received, with the intention of it going to the member of staff. The purpose behind the Allocation of Tips Act is to improve fairness for those who work hard for these tips.

In cases where employers already allocate tips to workers, this Act will create fairness across the board. All employers will now have to follow the same legislation and all staff, including agency workers, must receive their tips in full.

What Do Employers Need to Know?

Once this legislation comes into force, it will be illegal for employers to withhold tips from their team. The guidelines also state that tips should be distributed fairly among your workers. Employers can decide how they will be distributed, it doesn’t have to mean everyone receives an equal share. What every employer will need to do, is make sure the process is both fair and transparent. Staff need to be aware of how you will choose to allocate them.

Furthermore, staff members will have the right to request more information about tipping records once every three months. In instances where this new legislation is not followed, employees will be able to use this information as evidence against an employer in a credible tribunal claim.

To ensure everything is as transparent as possible, have a written policy that states how you will fairly allocate tips. Make this available to every member of the team. Keep records of any tips given to staff along with how much. You should also put processes in place to address concerns employees may have if they’re unhappy with the share of tips received.

On the customer-facing side of things, it’s also a good idea to have a process to manage customer queries about your tipping records.

From a financial perspective, this Employment (Allocation of Tips) Act 2023 does not directly affect tax or national insurance. However, it’s important to be aware that any changes employers make to their payment systems or processes, could affect national insurance and PAYE position.

Next Steps

While October may seem far away, it’s imperative that businesses work to implement these changes now. If you already allocate tips to team members, you will need to review your current processes.

To ensure you are compliant with the new legislation, there are a few considerations to make. You will need to look at your current workforce and consider how each person will be affected. Who is an agency worker? If you have staff that work remotely, how will you calculate their share of tips fairly?

Can you evidence that your current policy is fair and transparent? If not, you will need to consider how to begin evidencing this. Should your current policy not translate to the new legislation, what will you need to change?

Two vital considerations to make are whether your PAYE and National Insurance position will be affected and whether you can demonstrate robust tax compliance.

At Westcotts, we offer a variety of services to support businesses with their tax compliance, payroll management and more. If you would like to guarantee a smooth transition to the new legislation in October, we can help.

Get in touch with Jake Elms, Westcotts’ Payroll Operations Manager, via email or by calling 01392 288555. Alternatively, you can find all of the contact information for our offices here and a member of our team will be able to assist you.