Key Features of the Act

It provides protection for workers as defined in section 230(3) of the Employment Rights Act 1996. Agency workers are also included within the definition although employers may pay their tips via the agency.

It covers all tips gratuities and service charges over which an employer exercises control. These in turn are defined in the draft Statutory Code of Practice as:

• Tip/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.
• An eligible agency worker is protected if they meet the following criteria:
• They are supplied to do work for another person under a contract or other arrangement between the agency and that person.
• They are not, in respect of the work they are carrying out, a worker of that person due to the absence of a contract between themselves and that person.
• 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 that of a client or customer of an profession or business carried on by them.
• The Secretary of State has the power to issue a statutory code of practice on the fair and transparent distribution of qualifying tips. Failure to comply with any code will be admissible as evidence in tribunal proceedings and the tribunal will have to take the code into consideration when making decisions. See the code of practice here: Draft Code of Practice.
• The Act amends the definition of wages under section 27 of the Employment Rights Act 1996 to include qualifying tips, gratuities and service charges to ensure the statutory regime prohibiting deductions from wages will apply to such tips.

Workers Rights

• Workers may not contract out of their rights under the Act.
• Contractual provisions that require the worker to reimburse their employer for any qualifying tips will now be void.
• Workers have the right to complain to an employment tribunal where there has been a failure to comply by the employer with their obligations regarding allocation and payment of qualifying tips. The time limit for bringing such a claim is 12 months from the date of the failure to comply.
• Workers have the right to complain to an employment tribunal regarding an employers failure to comply with the duties that the Act imposes on them regarding policies and record keeping. The time limit for bringing such a claim is 3 months from the date of failure to comply.

Employers Obligations and Requirements

•  Employers have a duty to ensure that all qualifying tips, gratuities and service charges are allocated fairly to workers and eligible agency workers, with payment to be made in full no later than the end of the month in which the qualifying payment was received by the customer.
•  If applicable, the Employer can arrange for the qualifying tips, gratuities and service charges to be allocated between workers via an independent tronc operator (an independent party who will allocate the tips fairly between workers).
• Employers that pay qualifying tips, gratuities and service charges on a regular basis will need to have a written policy that sets out how those tips are being paid, how they are allocated and who is eligible. This policy must be made available to all workers.
• Employers also need to keep records of tip allocation, up to three years’ worth, and make sure that those records are available to workers upon them requesting them.

Employment Tribunal Powers

Employment tribunal has the following powers should the employer be found to be in failure of any obligations and powers that they have under the Act:

• Revise the allocation of tips
• Make a payment to a worker or workers (not just the claimant)
• Order the employer to comply with their obligations regarding policies and record keeping
• Order the employer to pay up to £5,000 for any financial loss suffered by the claimant because of the breach of their obligations and/or requirements.
• Where the employment tribunal requires the employer to revise an unfair allocation of tips, the employer is not entitled to require repayment of any past over allocation of tips from any of the workers that they have overpaid.

It is important for any employer who currently pays tips, gratuities and servicer charges as part of their everyday business to consider seeking advice, particularly as to whether the arrangements could be deemed contractual, before seeking to implement the changes. If you require any assistance regarding the matters outlined in this article, or wish us to review your current policies and employment contracts in advance of the above changes, please contact a member of our team.