All change: allocating tips

In October 2024, significant changes are coming into effect about allocating workers’ tips. These will likely impact hospitality, leisure and service industries, where tips often form a substantial part of workers’ income.

The new legislation aims to increase transparency and ensure that tips are distributed fairly and equitably among workers.

What’s new?

Businesses must distribute tips and service charges to workers in full. Previously, employers in some sectors could withhold a portion of tips to cover administrative costs or share them with managers. The new rules stipulate that those tips, whether given in cash, by card, or as a service charge, must go directly to the workers without any deductions, except for tax obligations.

Furthermore, the legislation also mandates that ‘qualifying tips’ must be distributed fairly among all workers within one month of receiving them.

As an employer, you should use clear, objective factors when considering fair allocation. The statutory Code of Practice on Fair and Transparent Distribution of Tips (the Code) provides guidelines on what constitutes fair allocation, and you may consider factors such as hours, performance, and customer intention when distributing tips.

The new rules encourage a more equitable distribution, recognising that all staff contribute to the success of the business. When considering these factors, you should be cautious of potential discrimination against workers. The Code also encourages employers to consult with staff to agree on a fair distribution method.

You must now keep a detailed record of all tips received and how they are distributed. These records must be readily accessible to employees, allowing them to see precisely how tips are allocated.

Next steps

If these new rules impact your business, you’ll need to review your current practices and implement systems that ensure compliance.

You should:

• Review the Code and consider how you will allocate tips to workers and what factors will determine equality and fairness in the distribution of tips. You should ensure these are clear and objective. Be cautious of any discrimination risks, ensuring any allocation process or policies are not indirectly discriminatory.
• Consider implementing a policy on allocating tips, ensuring this is accessible for workers.
• Consult with employees regarding the allocation of tips and request their input regarding the proposed process.
• Ensure sound systems are in place for accurate record keeping, which confirms tips received, how these were allocated, and the amounts allocated. Employers should ensure these are accessible to workers if requested.
• Consider internal payroll procedures to ensure workers receive their tips within one month.

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