The Law On Employee Tips Is Changing: Here’s What You Need To Know

This autumn sees new rules for managing staff tips – which means the way you currently handle tips in your business could become unlawful.

by CATHERINE | THE COST OF DOING BUSINESS

As revealed at this year’s Salon Smart, the government is about to introduce new legislation around UK tipping laws that will have implications for some hairdressing employers. The Employment (Allocation of Tips) Act 2023, expected to come into effect on 1 October this year, will make it unlawful for employers to withhold tips from workers. The new law will introduce changes to tipping practices in the UK and, if not adhered to, could have substantial financial consequences for employers, with awards of up to £5,000 per employee to reflect losses suffered.

The new legislation will protect tips paid by cash and card, ensuring that tips are passed on to employees without any deductions from their employer. The tips should be allocated fairly (a draft statutory Code of Practice (available here) has been provided by government), and all workers are protected by the new law, including those on zero-hour contracts.

If tips have not been paid on time, an employee can claim up to £5,000 in compensation.

The obligations under the new act include the total amount of the customer’s bill, which will include any deductions such as bank and admin charges. This means that employers will no longer be able to apply a portion of a gratuity or tip to meet those additional charges and will need to find an alternative way to pass on those charges to clients.

If, in your business, tips are regularly paid to your employees, you should implement a written policy that explains the allocation of qualifying tips, and how they will be distributed in a fair and consistent manner. Having a written policy which is clear and accessible to all staff will ensure adherence with the new laws and will help to avoid any potential employee complaints and claims.

You must also keep a record of how tips are being allocated and distributed among your employees. Under the new law, employees will have a right to request information about an employer’s tipping record once every three months. If an employee does request a copy of your tipping records, you must comply with this request within four weeks from the date it was requested. If there are inconsistencies in your records, or if the records show that the tips have not been distributed fairly, this can be used as evidence by an employee to bring a tribunal claim.

You should ensure that tips are paid to employees no later than the end of the month following the month in which the customer paid the tips. If tips have not been paid on time, an employee can claim up to £5,000 in compensation.

Finally, it is important to note that there will be no transition period. This means that, in order to avoid the consequences of non-compliance, you will need to make any required changes to your business operations before the new legislation comes into effect.