The Employment (Allocation of Tips) Act 2023 : Part 2 – Key Requirements and Enforcement

The Act makes provision for ensuring that the total amount of tips qualifying for payment under the Act and actually paid by customers is “fairly” allocated to workers, and once allocated, is paid. It applies to employees, workers and agency workers; and payment must be made no later than the end of the month following the month in which the tip was paid by the customer.

In this Part 2, we outline several important requirements of the legislation, followed by the approach taken to enforcement. As earlier, while the categories of payments covered by the Act are “tips, gratuities and service charges”, reference to all categories as “tips” is here adopted.

Unusually for employment legislation, provided tips are paid on more than an occasional and exceptional basis, employers will be required to have a written policy dealing with them. The policy must include whether the employer requires or encourages customers to pay tips, as well as how it ensures that tips are dealt with and allocated fairly; and must be made available to all workers at the employer’s place of business.

Employers will also be required to create a record of how every qualifying tip has been dealt with, including (i) the amount paid by the customer at, or otherwise attributable to, the place of business, and (ii) the amount allocated to workers by the employer (or independent tronc operator). Records are to be maintained for a period of 3 years, beginning with the date on which the qualifying tip was paid by the customer.

Further, on request from a worker in relation to a place of business of the employer the worker worked at, the employer must, within a period of 4 weeks beginning with the date the employer receives the request, provide to the worker a record of the amount in tips paid and allocated (as above) in respect of the period specified in the request (or a substantially similar period).

The period specified in the request must: (i) be of 1 month or 2 or more consecutive months, (ii) begin no more than 3 years before the date of the request, (iii) have ended before the date of the request, and (iv) be a period during which the worker worked for the employer at any time during each month forming part of the request.

If no written policy, or response to a request for records, is required under the legislation, but would be required if worker-received tips paid at, or otherwise attributable to, the place of business were qualifying tips, the employer must: in the case of the policy, make that information available to all its workers at the place of business, or in the case of a request for records, notify the worker; and in each case explain why it is not so required.

A worker may not make more than one request in any 3-month period.

While the limitation period for presenting a claim in most other areas of employment law is 3 months, a worker may present a complaint about the allocation and payment of tips by the employer (or agent, in the case of agency workers) within 12 months of the date of the failure to comply with the legislation. In the case of an alleged failure to comply with the written policy or records requirements, the time limit is within the normal 3 months of the date of the failure to comply.

The tribunal has powers under the Act (i) to require the employer to deal with qualifying tips so as to accord with the legislation, and in effect to revise their policy, and (ii) to revise an allocation and/or make a payment to one or more workers, including a worker who is not the claimant.

Compensation for financial loss incurred is limited to £5,000, which is likely to have been set to take account of any consequential financial loss to the claimant caused by non-payment.

The introduction of burdensome regulation of tips to the hospitality sector sits uncomfortably with the government’s stated aim of pursuing non-regulatory options when it can. The announcement, just 8 days after the Act received Royal Assent, that it has taken the opportunity of new freedoms afforded by Brexit to scrupulously re-think, at a foundational level, how and when it regulates, was given further impetus by the government’s shift in emphasis from treating regulation as the default first choice option, to regulation as a last resort, citing alternatives to regulation, such as standards and guidance, as often more flexible, quicker to introduce, and easier to adjust and remove if not working effectively.