UK government publishes statutory Code of Practice on tipping

The Government has published its revised statutory Code of Practice on Fair and Transparent Distribution of Tips, following a lengthy period of consultation. It is due to come into force on 1 October, the date when new laws will require employers to pass on all qualifying tips, gratuities, and service charges to their workers. We’ll speak to an employer lawyer about the impact of the new law on the hospitality sector.

A reminder. From 1 October, the Employment (Allocation of Tips) Act 2023 will require employers to:
- pass on all “qualifying tips, gratuities and service charges” to workers without deductions, except in very limited circumstances 
- ensure that tips are distributed in a fair and transparent manner when the employer takes control, or exerts significant influence, over their distribution
- have regard to the Code when they are distributing or influencing the distribution of tips
- maintain a written policy on tips; and
- maintain a record of all tips and their allocation and distribution between each worker

Employers will be under a legal duty to have regard to the Code when designing and implementing tipping policies and practices. Importantly, tribunals will take that into account when determining any claims from workers that might arise under the Act.

So, let’s hear more about the Code and what employers will need to do to be ready for the new laws from 1 October. Earlier I spoke to employment lawyer Francis Keepfer who joined me by phone from Manchester to discuss it. I put it to Francia that the central theme of the Code is ensuring fairness:

Francis Keepfer: “Yes, that’s absolutely right. So, fairness doesn't mean absolute equality for all workers. So, if there’s a pot of £100 and there are ten workers, you don't have to split it all £10 each. Those workers may be paid different amounts, or different proportions of that pot of tips. So I think what employers need to be doing in order to kind of avoid those allegations of discrimination, or even unfairness, is to be as transparent as possible in their decision-making and giving due consideration to all queries and concerns raised by workers as to the proportion of tips they're getting out of that pot. The code of practice makes it clear that there are various different reasons why an employer might choose to pay at different proportions of the tip pot to different workers. So, it's things like the type of work they're doing, what was their basic pay to begin with, how many hours did they work, what's their performance been like, how senior are the staff and, maybe, how long they've been employed by that employer. They're all reasonable factors which the government have said through their code of practice that a worker can take into account when assessing this decision of fairness but, again, as I've mentioned before, the code does say that employers should then consult with workers to kind of get that broad agreement in the workplace to make sure that everyone is happy that the allocation of tips is fair, reasonable and, as I've said, clear, so everyone's getting that back clarity. There's also the stipulation in the code of practice and in the legislation that there has to be a tipping policy and that has to be shared with all workers. So again, that adds to that need to be clear and transparent with workers and that tipping policy is part of that.”

Joe Glavina: “This concept of fairness is potentially a bit of a minefield to my way of thinking, Francis, because, of course, managers who get it wrong could fall foul of the UK’s discrimination legislation. Would you agree?”

Francis Keepfer: “Yes, absolutely. I think the principal risk here is indirect discrimination. So that's not direct discrimination where, for example, you pay somebody less of the tipping pot because they have a particular protected characteristic. This is where fewer tips are allocated to a certain group of workers and that group includes a disproportionate number of workers with a particular protected characteristic. So something like race, age, disability, something like that, under the Equality Act. I think employers need to be really careful to avoid that happening. So first and foremost, when they are setting that tipping policies, and when they're consulting with workers to ascertain that question of fairness, they need to be identifying those sorts of risks and monitoring those risks to make sure that it isn't happening and then if they identify later down the line that actually what they previously thought to be a fair approach and policy which wasn't indirectly discriminatory but has subsequently become indirectly discriminatory, they need to obviously take steps as soon as possible to alleviate it from happening. So, I think that the headline is that employers can't just rest on their laurels and think, right, well, we've come up with a policy that we think is fair and non-discriminatory because as workers come and go, it may be the issue that the policy is no longer fair or non-discriminatory. So, as I say, the headline is that employers need to be constantly reviewing their policies on a regular basis in line with staff turnover and as the organisation changes.”

Joe Glavina: “The Code says employers must maintain a record of all tips, and their allocation and distribution between each worker, and they must give workers access to it. Tell me about that.”

Francis Keepfer: “So the new legislation, as you point out, requires there to be a tipping record and that has to include details of all qualifying tips received by the employer at the place of business. So everything that comes in, and then how that's all gone out again, so the amount allocated to each worker, and that has to be maintained for a period of three years beginning on the date on which the tip was paid. The legislation also says a worker has a right to make a written request to see that tipping record. Now, having a Tronc system, which can either be employer run or it can be independent, but that's effectively a system in place which the employer effectively delegates to someone else to allocate those tips on their behalf. Having that system in place doesn't excuse you from (a) having a tipping record, or (b) giving the worker the right to inspect that record, and the legislation makes clear that the record keeping requirement needs to cover the amount allocated to each worker, or the amount that's given to the Tronc system which will then go on to allocate the tips. So the headline is having that Tronc system doesn't absolve an employer of its obligations to keep a tipping record and to give employees and workers the right to inspect that record.”

Joe Glavina: “Workers who feel they have been treated unfairly can complain to their employer and, ultimately, they can bring an employment tribunal claim. So, there are consequences for employers who get this wrong?” 

Francis Keepfer: “Yes, absolutely, I think the government on the basis of the code of practice and the legislation, and in particular, the code of practice, are really intending to take this quite seriously. The code of practice emphasises that employers should obviously have a fair process in place for resolving issues and that talks to that point I mentioned earlier around being transparent and clear, but it then goes on to make very clear that if those discussions and those complaint mechanisms internally cannot resolve the issues raised by workers, then workers do have recourse and that includes bringing an employment tribunal claim. So that can be based on the failure to comply with the requirements surrounding allocation and distribution which is, again, that fairness point we talked about earlier, or the requirement surrounding the written tipping policy and the tipping records. So, all of these new measures that the government are introducing, all of them can kind of come back to bite the employer if they don't comply and the tribunal will effectively be empowered with various different weapons, I suppose. It can make a public declarations. So it can name and shame. It can also order the employer to get it right, to revise a previous allocation of tips if it doesn't think it's been done fairly. Or it can order an employer to pay workers compensation. So there's a whole kind of menu of options. The other really interesting thing to note is one worker can bring a claim but the tribunal can make an order that affects other workers who haven't made a complaint. So, it's potentially very damaging for an employer if they if they don't get it right.”

Joe Glavina: “So, given that risk Francis, I guess you want employers to act now rather than wait until the law comes in?”

Francis Keepfer: “Yes, absolutely, now is the time to act. Notwithstanding the delay in the implementation date from July to October, the government have actually said all businesses should start following these requirements immediately before they come into legal effect. There's no legal requirement to do that but I think that comes from a place of best practice because if you're getting it right now you're going to be getting it right in October when the law comes into force. So part of that will involve consulting with staff to agree what a fair system looks like. Obviously, there's not going to be a one size fits all solution, as we talked about earlier, there are going to be different methods for different employers based on all of those factors mentioned in the code of practice around what fair allocation looks like and what one workforce agrees as a fair system might be completely different for another but, again, it's about having that early consultation and clarity in place. The last thing, I think, to say is the government have said that there'll be further additional non-statutory guidance coming out in due course so, again, that is designed to give employers a little bit more clarity in terms of how this is actually going to work in practice. So, employers should be looking out for that as and when it lands.”

The new tipping laws are due to come into force on 1 October, so in around 4 months’ time. As Francis said, we are expecting further non-statutory guidance to be published by the government and as soon as we have that we will let you know. The final version of the statutory Code was published on 22 April. We have included a link to that in the transcript of this programme for you.

LINKS
- Link to final draft: Code of Practice on Fair and Transparent Distribution of Tips