New Law: Employers must pass all tips to employees

Employers in the service sector are now required to pass all tips on to their staff, following the introduction of a new law in England, Scotland and Wales.

More than three million service sector workers will benefit from the ‘Employment (Allocation of Tips) Act’ (also known as the Tipping Act) which came into force on Tuesday 1st October 2024. The new legislation applies if your employer collects tips centrally and then shares them out among the staff. It might apply if you work in a:

• Pub, bar, cafe or restaurant
• Hair or beauty salon
• Casino

The law applies to all workers regardless of whether they’re employees, agency workers or on a zero-hour contract. Note that any tips given directly to an employee in cash or via a tipping app isn’t covered by the new law, and it remains the responsibility of the employee to pay the correct tax on tips they get directly from customers.

The law has not been introduced in Northern Ireland, although the Northern Ireland executive is currently drafting a workers’ rights bill following the conclusion of a three-month consultation.

Putting in place a written tips policy

If customers tip frequently an employer must have a written tips policy which is ‘fair and easy to understand’, while businesses must also keep a record of all tips that are paid.

Note that ‘fair’ does not mean the employer has to share tips equally between all workers. For example, the company might decide to give a bigger share to longer-serving staff or more senior employees, or based on the roles they perform. The employer is also free to consider customer intent, for example if they intended all of the tip to go to a particular worker. Staff will also be able to request a breakdown of how tips are being distributed every three months.

Whenever the company creates or changes the tipping policy they should check with staff that they agree with it.

What if an employer doesn’t pass on tips?

If a company breaks the law and fails to pass on 100% of the tips they receive, staff will be able to bring claims against the business at an employment tribunal. Businesses found to have broken the law could be made to pay fines or compensation to staff.

How to stay compliant with the law

If you’re a business in the service sector and want to ensure you remain compliant with this new law, as well as similar legislation, the best thing to do is to employ the services of experienced accountants like the team here at Warr & Co.

We offer a range of services to businesses of all sizes, from family-owned cafes to multisite restaurant brands. Find out more about our business accounting services here, or request a free, no obligation consultation today.