The government has introduced new legislation to shake up the way that tips are allocated in the hospitality sector.

The Employment (Allocation of Tips) Act 2023 received Royal Assent in May 2023 and will make the withholding of gratuities from staff illegal.

It's not entirely clear when the legislation will come into effect, but it's likely to be in around a year.

The government has said that the bill could return around £200 million to workers' pockets – but it's received a mixed welcome from unions.

What will change for employers?

Under the new legislation, employers will have to allocate tips and service charges fairly between their employees.

The bill doesn't define what's meant by "fairly" – but there are a couple of developments that may clarify this.

First, there will be a new statutory code of practice for businesses and staff. This will set out advice on how tips should be distributed. It's currently in the pre-consultation phase.

Second, employers will need to have a written policy concerning tips and keep records of every tip and service charge they receive.

The bill encourages employers to use the "tronc" system. This is a special type of pay arrangement for distributing tips and service charges that customers have paid by card.

The bill covers both public and non-public places of business and protects agency workers as well as employees.

What will change for employees?

At the time of writing, employees have three months to make a claim for unpaid monies to an employment tribunal. If they lodge the complaint three months after the last failed payment, their case won't be considered. Under the new bill, this limitation period will be extended to 12 months.

Employees now have the right to request information about an employer's tipping record. This aims to increase transparency and empower workers at employment tribunals.

Tribunals, too, are empowered to compel employers to make changes to their tip allocation policies. They can also order an employer to pay tips to anyone who works for the company, not just the claimant.

Up to £5,000 can be claimed in compensation if tips haven't been paid on time.

What does the government say?

According to the government, the new legislation will protect around two million workers. It forecasts that £200 million a year will "go back into the pockets of hard-working staff by retaining tips that would have otherwise been deducted". 

The House of Lords broadly welcomed the Bill, but peers – including Lord Mitchell – warned that there could be "unintended consequences".

One is that some agencies build an "implicit tipping share" into the daily fee. This could create a situation where agency workers are receiving twice as many tips as directly employed staff.

He also argued that employers should be able to deduct from the amount of tips to cover credit card processing fees.

What do the unions say?

The bill has received a mixed reception from unions whose members include hospitality staff.

GMB London welcomes the legislation, calling it "a welcome boost" for workers "in often low-paid, insecure and unacknowledged sectors". It says it's especially welcome during the cost-of-living crisis.

At the time of writing, Unite hasn't issued a statement on the final Bill. However, in July 2022 – when the Bill was going through its second reading – the union raised concerns that it wouldn't adequately address the problem.

"We are not confident," a spokesperson said, "that these measures will address the problems with tipping practices across the hospitality sector".

The meat of its objection was that the tronc systems advocated by the government are open to exploitation by employers.

This is because it's possible to exempt tips paid by card through a tronc system from National Insurance. Some employers aren't doing this and, in Unite's view, are withholding the full amount due to employees.

What else might change in employment law?

At the time of writing, many hospitality workers are denied the right to lodge workplace grievances collectively. At the Trades Union Congress conference in 2022, Labour Deputy Leader Angela Rayner announced proposals to change this.

This would affect the allocation of tips. If the proposals passed under a future Labour government, employers could be less likely to withhold tips if they knew their staff could lodge a collective grievance.

By the end of 2023, the Retained EU Law (Revocation and Reform) Bill aims to abolish all EU laws that haven't been reinstated or replaced since the UK's withdrawal from the European Union.

This could potentially affect secondary legislation derived from Brussels, including working time regulations, agency worker regulations and TUPE, which protects employees when their employer changes hands.

Flexible working is another issue under scrutiny. The Employment Relations (Flexible Working) Bill is currently at the committee stage in the House of Lords.

It proposes to remove the managerial right to reject a request for flexible working. Employees would be able to request a change to working hours, times and locations from day one of their employment.

The government is also moving to crack down on "fire and re-hire". This is when an employer fires a member of staff and re-hires them under a new, less favourable contract.

So far, this crackdown has taken the form of a planned statutory code which would, in the words of Business Secretary Grant Shapps, "crack down on firms mistreating employees and set out how they should behave when changing an employee's contract".

It would also mean that courts could apply a 25% uplift to an employee's compensation if their employer had deviated from the code.

Critics say the proposal doesn't go far enough and still allows "fire and re-hire" to happen as a last resort.

The code of practice is currently open for consultation.

Are you affected by the Employment (Allocation of Tips) Act and looking for legal guidance? Get in touch with our team of experienced employment lawyers today for a free, no-obligation consultation.