How Will The New Employment (Allocation of Tips) Act 2023 Affect The Hospitality and Leisure Industries?
The landscape of tipping and service charges in the UK is set to undergo a significant transformation with the introduction of the Employment (Allocation of Tips) Act 2023 later this year.
This legislation aims to eliminate uncertainties surrounding the allocation of service charges and other tips, ensuring that employees receive their due share.
In this article, we delve into the current system and the forthcoming changes that businesses in the leisure and hospitality sectors should be aware of.
At present, “tipping” typically encompasses both tips (whether in cash or card) and service charges, which can be discretionary or mandatory. When customers give cash tips directly to staff, these tips essentially become the property of the employee. While their employment contract may stipulate otherwise, it is generally up to the individual to decide whether to share these tips with colleagues.
On the other hand, when tips and service charges are collected by the employer—whether through a tip jar on the counter or a 12.5% service charge added to the bill—the distribution methods can vary. These range from the employer determining the allocation of tips and service charges to the staff members themselves agreeing on the day’s distribution of cash tips.
Additionally, many businesses put in place a “tronc” system, being a mechanism which allows tips and service charges to be pooled and distributed among staff by a designated “Troncmaster” without direction from the employer. It is worth noting that the chosen method of collection and distribution carries tax and national insurance implications, which will not be covered in this article.
Currently, there are no restrictions on businesses deducting amounts from the collected tips and service charges before distributing them to staff. While there may be valid reasons for such deductions—such as the operational costs of administering a tronc scheme—media attention has increasingly focused on employers making significant deductions from service charges, particularly as around 80% of UK tipping now occurs via card payments.
Five key changes Under the Employment (Allocation of Tips) Act 2023 are as follows:
Under the new legislation, businesses will no longer be permitted to make deductions from the tips and service charges collected. Every penny collected must be distributed to the staff, with deductions only permissible for tax or as otherwise authorised by law.
Businesses will be obligated to allocate tips and service charges “fairly” among workers. Although the legislation does not specify what constitutes fair allocation, this is expected to be clarified in due course. Employers will be required to have a written policy outlining the fair, transparent, and consistent distribution of tips.
Tips and service charges must be paid to eligible workers no later than the end of the month following the month in which the tip or service charge was received from th
Employers must maintain records of the allocation and distribution of tips for a minimum of three years from the date they are received.
Employees will have a separate right to bring a claim in an employment tribunal if there is a breach of these requirements. The tribunal may, among other remedies, order compensation of up to £5,000 to an affected employee to compensate for any losses suffered.
The implications of these changes are significant, particularly for employers in the leisure and hospitality sectors. With businesses already facing financial challenges, the additional administrative burden of distributing tips and service charges could strain resources. One alternative may be to pass these costs back onto customers, but this is unlikely to be popular in the current economic climate.
In light of the forthcoming legislation, it is prudent for businesses to start implementing the necessary policies, structures, and procedures now. By doing so, businesses can be better prepared to comply with the new requirements and ensure compliance from the outset.
To discuss any of the points raised in this article, please contact Adam Convisser or fill in the form below.
Read MoreIn recent weeks, several prominent organisations have announced mass redundancies, underscoring the ongoing economic challenges faced by businesses. Dyson, the renowned technology company, recently revealed plans for up to 1,000 job cuts, citing shifts in market dynamics, and evolving business strategies. Similarly, Manchester United, one of the world’s most valuable football clubs, has made headlines with its own round of redundancies, reflecting broader financial pressures within the sports industry.
As these developments highlight the increasing prevalence of workforce reductions, it is crucial for employers to understand their legal obligations when it comes to handling redundancies. Failure to adhere to these requirements can result in significant financial, reputational and operational risks.
Essentially, redundancy occurs when an employer needs to reduce its workforce because a specific job role or a number of jobs are no longer required. Under the Employment Rights Act 1996, redundancy can arise in three types of situations, (1) business closure, (2) workplace closure, and (3) a diminished requirement of the business for employees to do work of a particular kind.
There are many different factors for which a business might need to consider making redundancies, for example, economic downturns, technological advancements or organisational restructuring.
It is also important to distinguish redundancy from other forms of dismissal. Unlike dismissals based on an employee’s performance or conduct, redundancy specifically relates to the role being redundant, not the individual. For instance, if a company introduces automation that replaces a particular job function, the role, not the person, becomes redundant. That said, performance or conduct could form part of the process for selecting which employees will be made redundant (more on this below).
Employers must follow several key principles to ensure that the redundancy process is legally compliant and fair. Failure to do so can lead to claims of unfair dismissal and other legal challenges.
Here are 5 key principles:
Employers must demonstrate that the redundancy is legitimate, meaning that there is genuinely a reduced requirement for that role and there is a valid business reason for the decision. Common reasons include business closures, relocations, or a reduced need for specific roles.
An employer should have sufficient evidence to support the business reasons for proposing redundancies.
Consultation with employees is fundamental when assessing the fairness of any dismissal for redundancy. Therefore, failing to warn and consult with affected employees before dismissing them is very likely to be unfair.
Employers are required to engage in a meaningful consultation process with affected employees and where there are fewer than 20 redundancies, this should be conducted on an individual basis only. For 20 or more redundancies, see comments below. To ensure a proper consultation, it is important that employees are notified that they are at risk and informed of any redundancy proposals. This involves sharing relevant information, such as the reasons for redundancies, the number of employees affected, and the selection criteria. The consultation should allow employees to discuss the proposals and suggest alternatives.
There is no minimum period of time for a consultation to be meaningful or effective where less than 20 employees are concerned. The length of each consultation period should be determined on its own merits, ensuring it is sufficient to be considered meaningful and effective.
The selection process for redundancy must be fair and transparent. Employers must identify the pool from which employees will be selected (if any), especially where employees perform the same or similar roles. Fair selection involves the fair application of objective and non-discriminatory selection criteria such as skills, qualifications, and length of service. Any bias or unfair treatment can result in legal claims.
Employers should consider suitable alternative employment to ensure that a fair and reasonable redundancy process has been followed. This may include offering alternative employment within the organisation, reducing working hours, or considering voluntary redundancies.
If, at the time of dismissal, an employer has failed to give consideration to whether suitable alternative employment existed in the business, it is likely an employee will argue their dismissal was unfair.
Employees with two or more years of continuous service are entitled to statutory redundancy pay if they have been made redundant. The amount is calculated using a formula based on the employee’s age, length of service, and weekly earnings.
If an employer proposes to make 20 or more employees redundant within a 90-day period, collective consultation rules apply. This is particularly relevant in cases like Manchester United, where the club’s new ownership plans to reduce staffing levels by 250 employees.
In such cases, employers must:
The recent redundancies at major organisations like Dyson and Manchester United are a stark reminder of the economic pressures businesses face today. For employers, it is crucial to understand the requirements of conducting a fair and transparent redundancy process and be prepared with the relevant information to ensure a meaningful process.
By understanding the key principles of redundancy and the requirements for collective consultation, businesses can manage these difficult decisions in a way that minimises disruption and upholds their legal responsibilities.
To discuss any of the points raised in this article, please contact Ramona Bakshi or fill in the form below.
The Labour Party’s recently unveiled manifesto ahead of the upcoming general election presents their plan which is aimed at transforming employment law in the UK. The manifesto reinforces the comprehensive proposal titled“Labour’s Plan to Make Work Pay: Delivering a New Deal for Working People,” which outlines significant changes that could reshape the landscape for employers and employees alike.
Whilst it is not yet entirely clear how each of these changes will operate in practice, it is clear that these proposals, if implemented, will require employers to adapt swiftly. Therefore, it is crucial to stay ahead of these proposed changes and understand their potential impact on your business operations and HR practices.
We have summarised the key initiatives set out in Labour’s manifesto and ‘Make Work Pay’ plan below. The following list is not exhaustive but highlights the key areas which employers and HR should consider in preparation of the upcoming election and potential changes to UK employment law.
The manifesto proposes to provide basic rights from the first day of employment by abolishing the qualifying period for unfair dismissal, sick pay, and parental leave. These changes could be implemented as early as April 2025 which means businesses will need to consider adapting their current recruitment processes and implementing more robust probationary periods and early performance management strategies.
Labour plans to simplify the complex landscape of employment status by creating a single employment status of “worker” for all except those that are genuinely self-employed. This could extend fundamental rights to a broader spectrum of workers, and employers will be facing reassessment of their workforce classifications, greater administrative burdens and impacts on payroll practices, tax classifications and contractual arrangements. There are currently a number of “workers” who currently fall between employees and the genuinely self-employed.
This includes people like gig economy workers, casual workers, agency workers, freelances and independent contractors who may now find themselves given the same protections as employees.
Labour proposes several family friendly initiatives, including mandatory parental leave, additional protections against pregnancy-related dismissal and support for carers. With Labour’s pledge to review parental leave policies within the first year, employers should update their policies and procedures to align with these changes.
Labour pledges to make flexible working a day one right except where it is not feasible. Employers will need to consider the operational challenges it may face especially for roles which have fixed hours or require on-site presence. These changes aim to support work-life balance and include Labour’s introduction to a right to “switch off” outside of working hours. This initiative combats the blurring of work-life balance and employers will need to establish clear guidelines and expectations regarding out-of-hours communication.
Labour aims to extend equal pay protections to cover race and disability. In addition, they also intend to introduce ethnicity pay gap reporting. Employers with 250 or more employees would need to develop menopause action plans and include outsourced workers in gender pay gap reporting. Strengthening protections against maternity and menopause discrimination, as well as sexual harassment, will also be priorities.
Labour aims to eliminate what they term “exploitative” zero hours contracts, aiming to provide workers with more predictable working hours and greater job security. In particular, it ensures all workers will have the right to contracts with guaranteed minimum hours which reflect their regular hours over a twelve-week reference period. With its intentions to address “one-sided flexibility”, specific sectors such as hospitality and retail could be facing a significant impact. Employers may need to reassess their workforce strategies and consider alternative flexible working arrangements.
The Labour Party is aiming to enforce a genuine living wage by removing age-related bands and enduring fair compensation based on the cost of living. In addition, the manifesto includes stricter enforcement of sick pay, fair tips and banning unpaid internships. Employers will need to take into consideration its compliance with fair pay agreements and wage adjustments and compliance checks.
The manifesto promises a Single Enforcement Body to oversee and enforce workers’ rights more rigorously, potentially leading to increased scrutiny and penalties for non-compliance. Amendments to tribunal procedures could affect how employers handle disputes and legal challenges.
While the full extent and timing of these reforms remain uncertain pending election outcomes, the proposed changes to employment law represent a significant shift that will affect many aspects of business operations. Whether these reforms ultimately materialise, they signal a shift towards greater employee rights and corporate responsibility in employment practices. We are ready to provide tailored guidance and support to help you remain compliant and maintain a productive and positive workplace amid this evolving landscape.
To discuss any of the points raised in this article, please contact Ramona Bakshi or fill in the form below.
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