Fair Allocation of Tips – revised Code of Practice published

Following a period of consultation about the draft Code, the Government last week published its revised statutory Code of Practice on Fair and Transparent Distribution of Tips that it intends to have effect from 1 October 2024. It has delayed the previous proposed implementation date of July 2024 due to “extenuating circumstances”.

The Code is split into these sections:

Scope

• All workers are covered including permanent employees, agency workers and zero hours workers.
• The method of payment (eg card, cash, app) is not determinative of whether a tip is a “qualifying tip”.  The determining factor is whether the employer receives or exercises control or significant influence over the distribution of tips.
  • Therefore, falling out of scope are:
    • A worker receiving and keeping a cash tip with no employer control or involvement.
    • A digital tipping app through which a customer directly tips members of staff, bypassing the employer altogether.
• Service charges are within scope.
• Non-monetary tips are included (eg casino workers receiving casino chips as tips).

Fairness

• Except in very limited scenarios (eg tax), all tips and service charges should be passed on (i.e. the employer cannot levy an administration charge).
• Fairness does not mean that employers have to allocate the same proportion of tips to all workers.
• Employers should use a clear and objective set of factors to determine their tip distribution policy. An illustrative, but non-exhaustive, list of factors employers may wish to consider is:
  • Type of role (eg front or back of house).
  • Basic pay.
  • Hours worked during period when tips are received.
  • Individual and/or team performance.
  • Seniority/level of responsibility.
  • Length of service.
  • Customer intention.
• Policies should not be discriminatory.
• Employers should consult with workers to seek broad agreement to their system for allocation of tips.
• The employer’s policy should be reviewed regularly.

Methods of allocation and distribution

• Employers can use a tronc system (using either a member of staff or a third party tronc operator).
• If the employer uses a third party tronc operator, it must set out clear instructions or framework in line with the principles of fairness and, if the employer becomes aware of an independent tronc operator acting unfairly or improperly, the employer is obliged to address this in order to maintain a fair allocation of tips.
• Tips must be distributed promptly, at the latest by the end of the month following the month in which tips are paid. During the consultation process, some employers enquired about their practice of “smoothing over” tips over the course of a year. The Government has confirmed that this is not permissible.

Transparency

• Employers are required to have a written tipping policy in place where there are qualifying tips paid on more than “an occasional and exceptional” basis.
• The policy should cover:
  • How tips are accepted.
  • How tips are allocated and distributed
  • What steps the employer takes to ensure tips are handled fairly and transparently
• The policy can be in electronic or hard copy form (and in accessible format for workers with a disability, on request)
• There is no requirement for the tipping policy to be displayed publicly for customers to view, but employers may choose to do so
• Record keeping:
  
  • A tipping record must be kept of all tips received and the amount allocated to each worker
  • The record must be retained for a period of three years
  • A worker has a right to make a written request (limited to one request in a three month period) to view the tipping record of the employer for up to the past three years (provided they worked for the duration of the requested period)
  • Tipping records must be stored, processed and disposed of in line with data protection law

Addressing problems

• There should be a fair process in place for resolving issues and responding to queries.
• Employers must give equal weight to queries from agency workers as from their own directly-employed staff.
• If issues cannot be resolved internally, workers can seek to enforce their rights through the Employment Tribunal. An Employment Tribunal can:
  • Make a public declaration that the employer has failed in its obligations.
  • Order the employer to revise a previous allocation of tips.
  • Make a non-binding recommendation on previous allocation of tips.
  • Order the employer to pay compensation (which can include workers other than those who made the complaint to the Tribunal).
• The Code or Practice can be referred to in the Employment Tribunal.

There will be additional non-statutory guidance published in due course.

Notwithstanding the delay in the implementation date, the Government encourages all businesses to follow the new requirements immediately, before they come into legal effect.  

Businesses should start consulting with their staff to agree what system will be adopted for the fair allocation of tips. The Code of Practice makes it clear that there is no one-size-fits-all solution and what one workforce agrees is a fair system may be different to another.