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New rules on distributing tips: Understanding the Employment (Allocation of Tips) Act 2023 – Accountants in Wimbledon

On 1 October 2024, the Employment (Allocation of Tips) Act 2023 will come into effect, introducing major changes to how tips are managed and distributed within the hospitality industry. This legislation is designed to ensure fairness by mandating that all tips, gratuities, and service charges are distributed equitably among employees. These new rules address longstanding concerns about the retention and distribution of tips by employers, promoting transparency and fairness.

Summary of the New Rules

  1. Fair Distribution: Employers must distribute all tips, gratuities, and service charges fairly and equitably among workers, including both cash and card tips. The distribution must adhere to a Code of Practice and can include a tronc arrangement.
  2. No Deductions: Employers are prohibited from making any deductions from tips, including administrative fees, except those required by law (e.g., tax).
  3. Transparency: Employers must clearly communicate their tipping policies to employees and customers, ensuring transparency in tip allocation.
  4. Record-Keeping: Employers are required to keep detailed records of all tips received and distributed for three years, making these records available to employees upon request.
  5. Written Policy: A written policy outlining the distribution of tips must be in place and accessible to all staff members.
  6. Service Charges: Any service charges added to bills must be treated as tips and distributed accordingly.

Impact on Employers

If you are an employer affected by these rules, you will need to make changes in how you manage tips. Compliance with these regulations is crucial to avoid potential penalties and to maintain a fair working environment. Here are key impacts and suggestions for procedures employers should consider:

  1. Review and Update Tipping Policies: Ensure your current tipping policies align with the new rules. Establish a clear and equitable distribution method and communicate it to all employees.
  2. Implement Transparent Systems: Use transparent systems for tracking and distributing tips, possibly involving software solutions that automatically record and allocate tips based on predefined criteria.
  3. Employee Training: Conduct training sessions to inform employees about the new rules and the management of tips, ensuring everyone understands their rights and the procedures in place.
  4. Maintain Accurate Records: Establish robust record-keeping practices to document all tips received and distributed. Maintain these records for at least three years and make them accessible for inspection by employees or regulatory bodies.
  5. Communicate with Customers: Clearly communicate tipping policies to customers, possibly through notices on menus or at the point of sale. Transparency helps manage customer expectations and ensures they understand how their tips will be used.
  6. Regular Audits: Conduct regular audits to ensure compliance with the Act, identifying and rectifying any discrepancies or non-compliance issues promptly.

By implementing these procedures, employers can comply with the new rules and foster a fairer and more transparent working environment, enhancing employee satisfaction and trust, ultimately benefiting the overall business.

GET IN TOUCH WITH OUR WIMBLEDON ACCOUNTANTS if you need any assistance with the new rules or applying the Code of Practice. We are here to help!

For more information, visit: UK Government Consultation on Distributing Tips Fairly.

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