Statutory tipping code published ahead of new law in force on 1 October

If you operate in the hospitality sector you’ll be aware that very soon, on 1 October, new laws come into force for the treatment of tips, gratuities and service charges. The Employment (Allocation of Tips) Act 2023 will be supported by a new statutory code of practice designed to help employers comply with the new regime, and the news is that the final draft of the Code has now been published by the Government. We’ll take a look at the material changes from the previous version published back in May.
A reminder. From 1 October employers must: 

- ensure that tips are allocated and distributed in a fair, reasonable and timely manner
- have a written tips policy which sets out key information about the allocation and distribution of tips in clear, plain language
- communicate their policy to all workers; and
- keep a record of all tips they distribute

Importantly, a worker who feels they have been treated unfairly by their employer will, ultimately, be able to bring an employment tribunal claim and the tribunal will take into account all of the above when determining the outcome of that claim. 
Back in May the previous Conservative government published an updated final draft of the Code which we covered at the time. The new Labour Government has now approved the final version which contains a few changes including clarification on what counts, and what doesn’t count, as a qualifying tip so let’s hear more about that. Earlier I spoke to employment lawyer Francis Keepfer who joined me by phone from Manchester to discuss it. 

Francis Keepfer: “In terms of qualifying tips, the code has clarified that the determining factor in whether a tip is in or out, in terms of the Act, is whether or not the employer basically receives that tip on behalf of the worker and then exercises control - ‘significant influence’ is the wording that the code uses - in the distribution of tips. That's the kind of determining line in terms of whether a qualifying tip is in or out for the purposes of the of the Act. In terms of what is not included, the code refers to digital tipping as something that is excluded from the Act. Now, digital tipping isn't what it sounds like. You might think that digital tipping is to do with, perhaps, leaving a tip by Apple Pay or by chip-and-pin, but that isn't what digital tipping is. Digital tipping, according to the code of practice, is when a customer uses an app to directly tip members of staff, bypassing the employer altogether. So, that isn't included in the in the definition of qualifying tips.”

Joe Glavina: “The central theme of this new tipping regime is fairness. So tips must be distributed fairly. What does the Code say about the way employers should approach that?”

Francis Keepfer: “The Code of Practice gives lots of latitude to employers to determine for themselves, really, what is fair and reasonable in terms of a tipping practice and it sets out a number of different factors that employers might like to take into account in terms of working out how to allocate tips amongst their staff. It isn't concrete, it doesn't give a fixed definition of what is fair and reasonable but, as I say, it gives a number of different factors. Those factors include things like the type of role and work that different workers are doing, what their basic pay is. One of the new inclusions in this final code of practice is the number of hours worked during the period when tips are received. So an employer, for example, might allocate a bigger proportion of tips to a worker who does a greater proportion of hours worked. It also refers to performance, seniority, length of time served, and also the customer intention which is obviously key here.”

Joe Glavina: “Given what you say about employers have a lot of latitude when it comes to their tipping practices, what’s your key message to those HR professionals looking to finalise their arrangements before 1 October?” 

Francis Keepfer: “I think the key for employers is to be transparent and the Code of Practice encourages employers to engage in worker consultation. So, I think as part of preparing for the implementation of the Act, and the code, on 1 October employers really need to be working with their workers and speaking to them and understanding what, in their view, as well as in the employer's view, what is fair and reasonable and what does fair and reasonable look like. It will obviously include taking into account those factors and those points that I mentioned earlier but as I said, I think employers do have a certain degree of latitude but what is important, I think, is having that latitude, but being able to demonstrate how they've come to the kind of definition of fair and reasonable, how they've come to a methodology, being transparent with workers and, as I say, consulting with them as early as possible.”

Joe Glavina: “One of the things the final version of the Code makes clear is that agency workers are in scope. That’s significant isn’t it?”

Francis Keepfer: “Yes, so in terms of the new code of practice and the inclusion or non-inclusion of certain workers, the Code of Practice makes clear that agency workers are included. Now it's slightly trickier than an employer distributing tips to its own workers, its own employees, because obviously agency workers are not employed by an employer, they're employed by a separate agency company. So, the Code of Practice makes clear that employers will need to work with agency employers to allocate responsibility for the distribution of tips between themselves. So, that's another added layer of complexity for employers to consider if they do employ agency workers, or they do engage agency workers, I should say.”
Joe Glavina: “I think many employers were hoping the statutory Code would give them a fuller picture of what to do and how to do it but there do still seem to be some grey areas. There’s a non-statutory Code which we are yet to see which might help plug some of the gaps so should employers wait for that?” 

Francis Keepfer: “The code answers most, if not all, questions that employers may have around the implementation of the Act, but it doesn't cover everything. As we've talked about, the code lists a number of factors for employers to take into account in terms of coming up with a fair and reasonable methodology for the distribution of tips but it possibly doesn't answer everything, and there may be some more clarification in the non-statutory guidance which is to follow. However, I don't think employers should wait for that non-statutory guidance. We don't have any indication yet of when that guidance is going to be published. 1st October isn't that far away so I would encourage employers to be acting now, as soon as possible, to set up a methodology and to get a plan in place to deal with this. Hopefully, the non-statutory guidance follows reasonably soon, and that will help clarify the position for employers but, no, the message is very much to act now.” 

The final version of the Code of Practice on distributing tips fairly is available now from the Government’s website. We have included a link to it in the transcript of this programme.

LINKS
- Link to statutory Code of Practice on distributing tips fairly