What is in the draft code on fair distribution of tips?

The Secretary of State for the Department for Business and Trade is releasing a draft Code of Practice on Fair and Transparent Distribution of Tips (The Code) to ensure tips are distributed fairly and transparently under the Employment (Allocation of Tips) Act 2023 (Tipping Act). The Code’s initial implementation date of July 2024 was delayed due to extenuating circumstances, and it is now due to take effect on 1 October 2024. The Code applies to England, Scotland, and Wales and will be reviewed periodically to ensure it remains up to date.

The Code applies to all workers, including permanent staff, agency workers, and zero-hours workers that work within organisations that receive tips.

Provisions of the Tipping Act

The Tipping Act received Royal Assent on 2^nd May 2023. It requires employers to have a written tipping policy when tips are paid or attributed to a business more than occasionally. This policy should detail how tips are accepted, allocated, and distributed, and the measures taken to ensure tips are handled fairly and transparently in line with the Tipping Act.

The Code explains what qualifies as a tip, stating that tips can be given by card, in cash, or through other methods. The key factor is whether the employer controls or significantly influences the distribution of tips. Non-monetary tips (like vouchers, stamps, or tokens) also qualify if they are received or controlled by the employer.

What do employers need to consider?

Once the Code is implemented there are several considerations that employers should make.

Employers must avoid unlawful discrimination when selecting and applying factors for tip allocation and distribution. They must take extra care to prevent indirect or unintentional discrimination, especially when fewer tips are allocated to a group that includes a disproportionate number of workers with a particular protected characteristic. The factors considered by employers must be included in the tipping policy shared with workers. Employers should also regularly review their approach to allocating tips, considering staff.

Employers should have fair processes in place for resolving issues and responding to queries from workers who did not receive the expected share of tips. Agency workers' queries should be given the same consideration as those from directly employed staff. Employers should consult with workers to achieve broad agreement that the tip allocation system is fair, reasonable, and clear.

Additionally, tipping records must be stored, processed, and disposed of in accordance with the Data Protection Act 2018.

What rights do workers have?

A worker has the right to make a written request, limited to one request every three months to view their employer's tipping record for up to three years, provided they were employed for the entire requested period. The employer must provide the tipping record, including the total qualifying tips received during that period at the business and the amount allocated to the requesting worker.

If issues remain unresolved, a worker can enforce their rights through the employment tribunal system under the Tipping Act. A worker can make a claim based on an employer’s failure to comply with the requirements surrounding fair allocation and distribution, or the requirements surrounding the written tipping policy and tipping records, or both.

If an employment tribunal finds a claim about tipping fairness or transparency to be valid, it can publicly declare this. The tribunal can also order the employer to revise a previous tip allocation, make a non-binding recommendation on a previous tip allocation, or order the employer to compensate workers. This compensation can include other workers at the business who did not file a complaint.

Additional information about the employment tribunal process will be included in forthcoming non-statutory guidance.

Employers should begin planning now to ensure fair allocation and distribution of tips, develop a tipping policy, and establish an effective system for recording tips and handling worker requests for these records. In this process, employers must adhere to both the Code and the legislation. If you have questions about the draft code on fair distribution of tips or would like help drafting a fair distribution of tips policy, contact our Employment Team today by emailing employment@warnergoodman.co.uk or call 023 8071 7717.