Put simply, yes it could.
The desired outcome of the Employment (Allocation of Tips) Act 2023 ("the Act") is to improve fairness for workers by ensuring that the tips consumers leave in recognition of good service and hard work are going to the workers as intended. The Act aims to increase fairness in tipping practices and create a level playing field for employers who already allocate all tips to workers by ensuring that all employers follow the same rules.
The new draft statutory Code of Practice ("the Code") was approved in the dying days of parliament with cross-party support and received Royal Asset on 2 May 2023. The new government's suggestion that workers should 'decide how tips are allocated' would suggest this is likely to come into force as expected on 1 October2024.
Most of the substantive provisions of the Act are not in force until 1 October 2024, along with the Code, although the Secretary of State may make transitional provisions for any provision of the legislation.
What will this act change if the provisions come into force as expected on 1 October2024?
Whilst at first glance you may think these provisions will not apply directly to many employers, and therefore not change much in practice, they may be relevant to larger public employers including the NHS in some areas...
For example, where a hospital runs its own café on site, and staff have a tips jar, then the hospital must consider the new legislation and the Code. It is also very common in hospital for patients and their families to gift staff on the wards as a thank you for treatment.
A simple gift which has monetary value, but which cannot be divided or exchanged for cash (for example, a bottle of wine, or cake) would not count. However, a voucher, stamp, token or similar item (for example, Costa gift voucher) can count as a qualifying tip, gratuity or service charge if it:
- has a fixed value expressed in monetary terms;
- is capable of being exchanged for money, goods or services.
Whether it does in fact count depends on the degree of control the employer has over it.
The new code
The draft Code has five sections which consider qualifying tips and qualifying workers, the factors and methods relevant to fairness, transparency, addressing problems, and a glossary of terms.
Non-compliance with the Code will not give rise to a cause of action in itself. However, the Code will be admissible in evidence in employment tribunal proceedings, and any provision of the Code that appears to the tribunal to be relevant to any question arising in the proceedings will be taken into account in determining that question.
Who will be protected?
- Workers
A worker is an individual who has entered into or works under a contract of employment or any other contract, whether express or implied and (if it is express) whether oral or in writing, under which the individual undertakes to do or perform personally any work or services for another party to the contract who is not that individual's client or customer.
- Eligible agency workers
An individual is an "eligible agency worker" if all the following requirements are met:
- They are supplied by a person (the agent) to do work for another person (the principal or hirer) under a contract or other arrangements made between the agent and the principal.
- They are not, in respect of that work, a worker of the principal because of the absence of a worker's contract between them and the principal.
- They are not a party to a contract under which they undertake to do the work for another party to the contract whose status is, by virtue of the contract, that of a client or customer of any profession or business undertaking carried on by them.
What are qualifying tips, gratuities and service charges?
The Act applies to "qualifying tips, gratuities and service charges", which means all employer-received tips and certain worker-received tips.
An amount that is not paid in money can only be a qualifying tip, gratuity or service charge if it is paid in the form of a voucher, stamp, token or similar item which:
- Has a fixed value expressed in monetary terms.
- Is capable of being exchanged (either alone or with other vouchers, stamps or similar documents, and whether immediately or only after a time) for money, goods or services (or any combination of two or more of those things).
The Code provides the following definitions:
- Tip or Gratuity: A spontaneous payment offered by a customer. This can be in cash, as part of a cheque payment, as a specific gratuity on a credit or debit card payment or paid using a digital payment service or application.
- Gift: A one-off reward that a customer may wish to make that is non-monetary. It will have a monetary value but cannot be divided or exchanged for cash (for example, a bottle of wine).
- Service Charge: An amount added to the customer's bill before it is presented to the customer. If it is made clear to the customer that the charge is a purely discretionary amount and there is no obligation to pay, the payment is a voluntary service charge.
The Act does not have any retrospective effect - it will only apply in respect of tips, gratuities and service charges paid by customers on or after the date it comes into force.
What are the employer's obligations in relation to the fair allocation and payment of tips?
An employer must ensure that:
- The total amount of the qualifying tips, gratuities and service charges paid at, or attributable to, a place of business of the employer is allocated fairly between the employer's workers at that place of business.
- Where, as a result of that fair allocation, a worker is allocated an amount of employer-received tips, that amount is paid to the worker by the employer.
The fair allocation and payment of tips must be made by no later than the end of the month following the month in which the tip, gratuity or service charge was paid by the customer. The Code gives the example of a customer leaving a tip on 23 June which must be distributed by 31 July at the latest.
What factors must be considered?
The Code states that it will be for an employer to decide which specific principles best apply to its business and that, in the event of a dispute, it will ultimately be for an employment tribunal to decide whether the employer has complied with the law.
The Code sets out the key principles of fairness and suggests how employers can apply them to different aspects of developing and implementing a written policy on the treatment of tips, for example
- The fair allocation and distribution of tips does not necessarily require employers to allocate the same proportion of tips to all workers. There may be legitimate reasons why employers choose to allocate different proportions of tips to different workers.
- Employers should give due consideration to all of the workers involved in providing service to customers, including agency workers.
- The allocation and distribution of tips should be determined by reference to a clear and objective set of factors which should be fair and reasonable given the circumstances and the nature of the employer's business.
The Code also suggests an illustrative, rather than exhaustive, list of factors which employers may consider including:
- Type of role or work (for example, distribution between front of house and back-room workers).
- Basic pay (and how workers are engaged)
- Hours worked during periods when tips are received
- Individual or team performance
- Seniority or level of responsibility
- Length of service with the employer
- Customer intention
The Code goes on to state that:
- Employers must avoid indirect or unintentional discrimination, which may be a risk when fewer tips are allocated to a group of workers, which includes a disproportionate number of workers with a particular protected characteristic. Further detail, including some worked examples, will be provided in the non-statutory guidance that will be published in due course.
- Employers should consult with workers to seek broad agreement that the system of allocation of tips is fair, reasonable and clear. The factors considered by employers must be stated in the tipping policy shared with workers.
- Provided it is not discriminatory, the fact that a particular method of distributing tips is genuinely considered by affected workers to be fair may help a tribunal to conclude that it is fair and reasonable.
Amendments to provisions on unlawful deductions
Subject to certain exemptions, it is unlawful for an employer to make deductions from a worker's wages. The Act makes amendments to the law on unlawful deductions from wages, specifically:
- The relevant definition of "wages" is amended to expressly include "qualifying tips, gratuities and services charges allocated to the worker". As such, a deduction from tips that have been allocated to a worker in accordance with the Act will generally be unlawful.
- In relation to deductions from qualifying tips, gratuities and service charges only the usual exemptions that allow deductions are disapplied.
The effect is that deductions can only be made from qualifying tips, gratuities and service charges if they are required or authorised by statute. A worker cannot contract out of their right to receive tips that they have been allocated by the employer, or consent to such amounts being reduced.
Are employers required to have a written policy?
Where qualifying tips, gratuities and service charges are paid at (or are attributable to) an employer's place of business on "more than an occasional and exceptional basis", the employer must have a written policy on how it deals with tips.
The Code defines a tipping policy as "a set of written guidelines, which must be produced by an employer and shared with workers, and which sets out the factors considered by that employer to determine the allocation and distribution of tips".
The policy must include information regarding:
- Whether the employer requires or encourages customers to pay tips, gratuities and service charges at the place of business.
- How the employer ensures that all qualifying tips, gratuities and service charges paid at, or attributable to, the place of business are dealt with in accordance with the statutory requirements. This should include information on how the employer allocates qualifying tips, gratuities and service charges between workers.
Some worker-received tips will not be qualifying tips, gratuities, and service charges. If an employer is not required to have a written policy for a place of business because worker-received tips paid at, or attributable to, the place of business do not meet the definition, the employer must still make certain information available to workers, including the fact that the employer is not required to have a written policy for that place of business and why.
Conclusion
Whilst at first glance these new provisions do not appear to have specific implications for NHS employers and other health-care providers, it will be important for such employers to consider carefully:-
- if there are arrangements/situations that arise within their organisation that could be caught by the Act
- what steps they will need to take if so, to ensure compliance with the Act and the Code.
Hill Dickinson's Health Employment team would be delighted to support you with any questions or guidance you may need in this area – so please feel free to contact us if we can assist.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.