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  • Writer's pictureSusan Wakelin

Are employees allowed to keep a 100% of their tips?

Updated: May 25, 2023

Earning Tips & Service Charge

Tips are important for many employees in the UK to increase their earnings, especially for those who work in the hospitality industry. However, it is not uncommon for employers to keep some of their employee's tips, or to distribute the tips to other workers or departments not directly receiving them.

The new Employment (Allocation of Tips) Bill has, however, recently passed its Committee reading in the House of Commons. There is still a way to go before the bill becomes law, with a third reading expected in January 2023, followed by the debated and approval in the House of Lords to gain Royal Ascent.

What does the new Employment (Allocation of Tips) Bill mean?

The new bill provides enhanced protection for members of staff receiving tips, allowing them to keep a 100% of the tips they earn, which includes cash tips and service charge added to bills and credit card payments.

In addition to workers keeping their tips, the bill looks at the fair distribution of tips, whether those earning them are employees or workers, including agency workers. Employers will also be restricted from distributing tips to those not directly earning them and will be required to pay tips by the end of the following month.

Employers will be required to have a tips policy in place and available to employees. Although, the bill does not apply to employers who do not have control or influence over the allocation of tips, ie where cash tips pass directly from the customer to the worker, it would still be wise that some kind of policy or framework is put in place to avoid complaints.

Employers will also be required to keep records of all tips received and payments made for three years, which workers will have the right to request to see.

Will there be penalties for employers not following the new bill?

Workers will be able to raise a tribunal claim if they are subject to the unfair allocation of tips, or if they are not paid their tips on time. The maximum compensation for this will be £5,000.

In addition to this, workers who have requested to see records in relation to their tips, can make a separate complaint to the tribunal, if records aren't kept or they are not allowed to see them.

Should employers prepare for the new bill?

Whilst it is likely that the bill will have a positive effect on many employees, especially those directly earning tips, it may have a negative impact on employers and some employees due to the way the tips are distributed. Changes may initially cause issues and complaints about their fairness.

It would therefore be beneficial for employers to have a clear plan in place, which can be communicated to their team, in advance, to minimise any resistance or potential complaints.

When finally approved by the House of Lords, a new statutory code of practice will provide information to help businesses better understand how to implement this legislation to ensure fairness and transparency.

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