Withholding tips from staff to become unlawful

May 18, 2023
Carl Atkinson


View profile

Significant changes to staff contracts and employment policies are anticipated in the hospitality sector due to the Employment (Allocation of Tips) Act 2023 which received Royal Assent in May.

This legislation will make it unlawful for businesses to hold back tips/service charges from their employees and will ensure that staff receive the gratuities that they have earned. Although no recognised data exists on many workers fail to receive gratuities at present, the Government estimates that the impact of this legislation will be to protect the earnings of over 2 million workers and will be worth an estimated £200 million annually. Assuming that this figures are correct, the legislation is likely have a significant impact upon the operating costs of many hospitality businesses.

A commencement date for the new legislation has not been announced but government sources have suggested that this will be when there is adequate space in the legislative timetable which may be in about 12  months time.

Business and Trade Minister Kevin Hollinrake has suggested that:

“…this new law will ensure that staff receive a fair day’s pay for a fair day’s work – and it means customers can be confident their money is going to those who deserve it…”

Many businesses operate a system of “pooling” (aggregating) tips and the Government has not yet set out the detail of how the new law will operate in those circumstances. It has been announced that a Statutory Code of Practice will be published which will provide business and staff with “advice” on how tips should be distributed. No doubt the usual health warnings will apply to businesses which decide not to follow this “advice”. It appears likely that staff will be given the right to request information relating to the employer’s allocation/use of tips and presumably this will need to have a sufficient level of detail to allow staff to “trace” tips from the customer to understand whether they were ultimately paid to the employee. The draft Code is presently being written and is expected to be available for formal consultation later this year.

Presumably a failure to pay tips following the roll out of the new legislation will expose businesses to a claim in the Employment Tribunal. This is likely to be an unlawful deduction from pay claim, but it has been reported that the Government plans to extend the limitation period within which an employee could start a claim under the new legislation to allow for claims backdated up to 12 months. It is also reported that the new legislation will require employers to have written policy setting out the method of dealing with tips and will give Employment Tribunals the power to order businesses to revise their tips policy and to order compensation upon to £5,000.00 for not just the employee who succeeds in a claim, but all employees who have been impacted by the non-payment of tips.

Businesses were tips are received from customers should act now to plan how they will prepare for the new legislation coming into force. It is likely that they may require a tips policy and may need to decide how they will be able to communicate information about the management of tips to staff.

To contact Carl or read more about his practice, click here.