It has now been confirmed that both the Act and the Code of Practice are scheduled to come into force on 1st October 2024.
Why has this Act been created?
While the majority of employers were happy to see that the tips given by customers went to the employees concerned, some took the tips and treated them as the income of the business. Since for many employees in the hospitality industry, their low wages are supplemented to a significant degree by customer tips, this put them at a disadvantage financially. This was particularly problematic during the cost of living crisis, with food inflation and rising energy prices a major source of concern for low-paid workers.
Hitherto, employees confronted with this practice have had no real legal recourse; the employer had the whip hand. Now, however, there will be a clear legal duty on employers to ensure that tips go to the people whose service has earned them.
Distributing tips
While the Act doesn’t prevent the employer from organising the collection and distribution of tips themselves, they may instead outsource this job to what is known as an independent tronc operator.
A tronc is the name given to a particular arrangement in the hospitality sector that allows employers to fairly distribute tips, gratuities and service charges.
An independent tronc operator, known as the ‘tronc master’, is a person who administers the distribution of the tips made by customers to the business. The tronc master:
- takes the administrative burden away from the employer
- ensures that the tronc is operated in accordance with current employment and tax law
- provides a degree of trust since they are not the employer and are less likely to be accused of issues such as favouritism and dishonest practices
Many more employers will now be looking to use a tronc master with the arrival of the Act. It’s important to carry out due diligence on the candidates as there will likely be a plethora of new providers and their suitability can’t be guaranteed without checking.
If employers use a tronc to allocate a part of the total amount of tips between their workers, they must ensure it is fair and in line with the Act.
When tips must be allocated
The employer must:
- ensure that a qualifying tip, gratuity or service charge is allocated in accordance with the Act
- allocate tips to workers no later than the end of the following month in which the tip, gratuity or service charge was paid by the customer – for example, if the tip was paid on 2nd April, it must be paid by the end of May
Written policy
The employer must have a written policy on dealing with qualifying tips, gratuities and service charges for the place of business. That written policy must include:
- how tips are allocated and distributed
- what steps the employer takes to ensure tips are handled fairly and transparently in accordance with the Act
The employer must make the policy available to all its workers and, where a written policy is subsequently amended, the employer must make the amended version freely available.
Records
The employer must:
- create a record of how every qualifying tip, gratuity and service charge paid has been dealt with in accordance with the Act
- maintain that record for a period of 3 years beginning with the date on which the qualifying tip, gratuity or service charge was paid
The record must include the amount of tips paid, the amount allocated to the workers and how many of those tips were allocated by an independent tronc operator.
Enforcement: Failing to comply with the Act
If the employer or their agent do not comply with the requirements of the Act regarding the written policy or record keeping, a worker can make a complaint to an employment tribunal.
One significant point that employers will need to consider is the time limit for complaints to the tribunal about tips which is 12 months rather than the more standard 3. Additionally, if the tribunal is satisfied that it was not reasonably practicable for a complaint to be presented before the end of the 12-month period, they may consider the complaint if it is presented within a further period that they do consider reasonable.
If the tribunal finds such a complaint well founded, they must make a declaration to that effect.
They may:
- order the employer to deal with qualifying tips in accordance with the Act
- make an order requiring an employer or their agent to make a payment to the eligible agency worker of the amount the agent was required to pay to them
- make a recommendation to the employer regarding that allocation or require the employer to make a payment to one or more workers in accordance with the Act
A recommendation is not binding on an employer, but is admissible in evidence in proceedings before an employment tribunal.
What will employers need to do?
Employers will need to take steps to make sure that all tips and service charges are allocated fairly between workers. This means reading the Code of Practice (currently in draft format), familiarising themselves with its contents and, if necessary, getting legal advice and guidance on what they will need to do.
It is better to have policies and procedures in place ahead of time so that problems can be ironed out before it becomes legally imperative. Engaging the services of a legal expert will ensure you stand the best chance of being compliant with the requirements of the Act.
For more information, visit this Gov.uk page.