The Government has published the long-awaited draft Code of Practice (the Code) to promote fairness and transparency in the distribution of tips that fall within the scope of the Employment (Allocation of Tips) Act 2023 (the Tipping Act).
The Tipping Act gives new employment rights and protections to workers and creates new legal obligations for business to ensure that tips, gratuities and service charges paid by customers are distributed fairly and transparently to workers (including agency workers). Our previous blog explains more about the new rights and obligations to be introduced by the Tipping Act.
This article summarises the key principles of the Code. We recommend hospitality businesses familiarise themselves with the Code and take part in the consultation to share their views.
Consultation and implementation
The draft Code was published on 15 December 2023 and is subject to consultation until 22 February 2024. The Government proposes to analyse responses to the consultation and take account of views provided before publishing its response and the final version of the Code in spring 2024, ahead of the aim for the Code and full measures of the Tipping Act coming into force on 1 July 2024.
Employers must have regard to the Code when designing and implementing their tipping policies and practices. Failing to fully comply with the Code will not in itself amount to proof of unfair tipping practices, but Employment Tribunals will take the Code into account in determining disputes about tipping practices in relevant cases.
Non-statutory guidance is also expected to be published in due course.
Scope of the Tipping Act and the Code
The Tipping Act requires employers to distribute qualifying tips, gratuities and service charges fairly.
The Tipping Act defines qualifying tips, gratuities and service charges as employer-received tips or as certain worker-received tips. The Code notes that, broadly speaking, the determining factor in whether a tip is qualifying or not is whether the employer receives (in the case of employer-received tips) or exercises control or significant influence over (in the case of worker-received tips) the distribution of tips. Further explanation is set out in the Tipping Act and the Code. The Code explains that the method of payment does not determine whether a tip is a qualifying tip for the purpose of the Tipping Act or the Code.
The Tipping Act applies to employees and all workers, including agency workers. The Code clarifies that the Tipping Act does not apply to self-employed people.
Key Principles of the Code
The Code:
- provides overarching principles on what fairness is for the purpose of the Tipping Act.
- sets out the areas on which employers need to make decisions to comply with their duties.
- explains how employers should apply these principles in their specific places of business.
The Code includes a glossary of terms to aid understanding of the Code although the glossary is not intended to reflect the precise legal definitions. Businesses should refer to the Tipping Act for the legal definitions and seek legal advice as required.
Fairness
The Code sets out key principles of fairness for the purposes of the Tipping Act and the Code and notes that it will be for each individual employer to determine what specific principles best apply to their business. It will ultimately be for Employment Tribunals to determine whether an employer has complied with the law.
The Code includes the following key factors to consider and general principles (not an exhaustive list):
- Fairness does not necessarily require allocation of the same proportion of tips to all workers. There may be legitimate reasons why it is fair to allocate different workers different proportions of tips.
- Clear and objective factors to determine the allocation and distribution of tips should be used. For example:
- Type of role or work
- Basic pay (and how workers are engaged)
- Individual and/or team performance
- Seniority or level of responsibility
- Length of time served with the employer
- Customer intention
- Employers must avoid any form of unlawful discrimination when selecting and applying factors for allocating and distributing tips. Extra care should be taken to avoid indirect or unintentional discrimination.
- Employers should consult with workers to seek broad agreement that the system of allocating tips is fair, reasonable and clear. The factors considered by employers to allocate tips must be stated in the tipping policy shared with workers.
- Tipping policies should be reviewed on a regular basis.
Methods of allocation and distribution – including using a tronc
The Code acknowledges that there are various methods by which employer can allocate tips. This can include using a tronc and the Code notes that various tronc arrangements are permitted.
If an independent tronc operator is appointed, the instructions or framework the employer sets for its operation must be in line with the principles of fairness. If they do so, and the employer reasonably believes that the tronc is operating independently and fairly, the employer will be regarded as having complied with the Code. In our view this will require employers to conduct regular reviews with appointed independent tronc operators to ensure the principles of fairness are being followed. If an employer becomes aware of any unfair or improper practices, the Code requires the employers to act to address this to maintain a fair allocation of tips.
Transparency
The Tipping Act requires employers to have a written tipping policy about the allocation and distribution of qualifying tips. Ensuring transparency requires workers to be aware of their entitlements in line with the tipping policy.
The Code states that employers can decide how to disseminate the written policy to staff. It can be provided in either electronic form or as a physical written document. All staff should have the same access to the written policy. The policy must be written in plain language and the Code requires employers to provide an accessible format for any worker with a disability, on request.
Employers can provide the tipping policy directly to agency workers they engage or request the agency shares the policy with agency workers on their behalf. Agency workers should not be disadvantaged if they are brought in at short notice and employers must take appropriate steps to ensure agency workers are not left unaware of the policy.
The Code also includes guidance on employers' compliance with the record-keeping requirements of the Tipping Act.
Resolving Disputes
Employers should have fair processes in place to resolve issues and to respond to queries from workers, including agency workers, who have not received the share of tips they expected to.
The Code sets out the options available to workers if internal processes do not successfully resolve issues raised by workers. This includes contacting Acas (the Advisory, Conciliation and Arbitration Service) in the first instance or if matters remain unresolved, enforcing rights through the Employment Tribunal system.
Hospitality and other businesses requiring assistance and advice to comply with the Tipping Act and the Code can contact lydia.christie@howardkennedy.com
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