Skip to main content

News story

June 30, 2024

Fair tips for all: New legislation ensures transparency in gratuity distribution

New rules to ensure fairness and transparency around handling tips, gratuities, and service charges for hospitality and other service sector businesses come into force on 1 July 2024. The new rules are designed to create an even-handed approach in situations where the employer controls how tips are distributed.

Tips jar

From July 2024, a statutory code of practice will provide businesses and staff with guidance on managing tip distribution. This follows the Employment (Allocation of Tips) Act 2023, which made it unlawful for employers to withhold tips and service charges from staff.

Partner and head of employment Karen Cole stated:

“This code is the final stage in tightening up the rules around how tips are handled in the workplace. Any employers operating a business where gratuities and tipping occur must adhere to the code and review their policies and practices to ensure they comply with the new rules.”

The 2023 legislation aims to control workplace tipping and prevent employers from making deductions or withholding service charges under the guise of ‘administration’ fees, especially for card payments. Previously, businesses often deducted transaction fees from tips given via card payment before passing the remaining cash to workers. Now, the entire sum must be passed on without deduction.

The code of practice is intended to facilitate fairness and transparency. Businesses will be required to:

  1. distribute tips to staff by the end of the month following the month in which the customer paid the tip; and
  2. have a written policy on the allocation of tips and maintain records of the distribution unless they receive gratuities only occasionally and exceptionally.

Karen added:

“Employers need to ensure fair distribution among all workers, except the self-employed. This includes permanent staff, directly recruited staff, agency workers, and zero-hours contract workers in the same location. The distribution does not have to be in the same proportion for all workers; for example, front-of-house staff may be treated differently than back-of-house staff. However, it must be fair, reasonable, and clearly set out in a written policy that workers can access.

Additionally, businesses should remember that tips cannot count towards the national minimum wage.”

The National Minimum Wage Regulations apply to any eligible worker, whether paid by the hour or on another basis. Calculations must ensure the equivalent hourly rate meets the required amount. Any gratuities received must be in addition to the national minimum wage.

Top Tip

Act now and ensure your business complies with the new rules.

Contact Karen Cole today for expert advice on updating your policies and practices. Ensure a smooth transition and avoid potential penalties. Call Karen on 020 7299 6909 for more information.

Note: This article is not legal advice; it provides information of general interest about current legal issues.

Stay in touch

Subscribe to our newsletter

Stay in touch

By completing your details and submitting this form you confirm you are happy for us to send you marketing communications and that you agree to our Website Privacy Policy and Legal Notice and to us using Mailchimp to process your data.


Sending

News/Insight

  • What is the Employment Rights Bill 2024?
    The Employment Rights Bill 2024 marks a pivotal moment in UK employment law, promising the most significant reforms in over three decades


    Read more
  • Autumn Budget Statement 2024
    Key implications for employment law, property law, and estate planning


    Read more
  • Disclosure against warranties in UK corporate transactions
    In UK corporate transactions, disclosure of information is a vital strategy for sellers to shield themselves from warranty claims when selling their shares or business.


    Read more
  • How the Employment Rights Bill 2024 impacts employers and businesses
    The government’s new Employment Rights Bill outlines significant changes to employment laws, focusing on workers' rights and flexibility.


    Read more
  • Business First Magazine
    Autumn/Winter 2024 Edition


    Read more

What they say...

  • Stephen, November 2024
    “Outstanding family lawyer who came through for me in a difficult case. In the world new to me of divorce and the aftermath, [Pippa Marshall] provided excellent advice from the first call and right through to conclusion. She made a difficult ex

  • M. M. Homes, November 2024
    “Charlotte explained everything very clearly and made the whole process nice and easy. Have already started recommending her to my friends.” Wills and LPAs

  • Nim, November 2024
    “I highly recommend James McMullan and his team. They all did a fantastic job with helping me through a particularly difficult family situation. They are extremely professional, caring, and experts in their field.” Probate and contentious

  • Man Kiu Wan, November 2024
    “Thank you Charlotte for your excellent and professional services.” Probate

  • Ms K, November 2024
    “I was recently made redundant, and my company had handled some of the process quite poorly. Patrick came recommended by a friend who had used him during her own redundancy, and I can now wholeheartedly recommend him myself. His initial consult

Read more
Send this to a friend