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Tips- do they reach your waiter or waitress?
Tips, or service charges, are an important element of service worker’s income. But should they also be an important part of their employer’s operating costs? Newly passed legislation says “no”.
In the days of paying by smartphone, and the drop off in cash based transactions, employees are more dependent than before on their employers to process their tips payments and to ensure that tips are fairly distributed.
Concern has existed for years, and in legislative circles since at least 2016, about unscrupulous employers and their underhanded way of processing employee’s tips.
The Employment (Allocation of Tips) Act 2023 was passed in May this year to try to deal with some of these concerns. The main target of the act was employers who charged their own staff “admin” fees for handling the tips payments by customers.
While the Act is now law, it has not yet started in operation. The start date has not yet been announced, but is expected to be in May 2024.
From the start date, employers will have to ensure that all tips are passed to employees. Admin fees are not allowed, including charges or fees for using a credit card. The full amount of the tip has to be passed to employees.
This does not have to mean the employee who dealt directly with the customer. The new rules allow for a fair allocation of tips between the employer’s workers. The rules also still allow for the operation of a ‘Tronc’ system (which is a special pay arrangement enabling hospitality and leisure businesses to fairly share staff tips).
We don’t yet know what a “fair allocation” means in practice, but if tips are paid on more than an occasional and exceptional basis, employers will have to have a written policy on how they deal with tips.
Tips are now included in the definition of wages, removing some uncertainty about the legal position. This means that if an employer breaches the new rules on tips, they may be facing an unlawful deduction of earnings claim in the Employment Tribunal. Importantly employees are not allowed to contract out of their new rights.
For most service industry employees with reputable employers, hopefully not much will change when the new law takes effect. However, for less reputable employers with exploitative tip handling practices – the clock is ticking.
For more advice on this legislation or any other aspect of employment law please email us here.
