The Allocation of Tips Bill: What you need to know

In October, The Employment (Allocation of Tips) Bill, passed the Committee stage within the House of Commons, meaning it could soon become law in England, Wales and Scotland.

The Bill aims to outlaw the withholding of tips and give more protection to employees, benefiting more than two million people in the hospitality sector.

Amy Forshaw, Employment Law and HR Solicitor, discusses what the bill means for employers.

What does the Bill mean for employers in the hospitality sector?

The Bill, if passed, would create a legal obligation on employers to allocate 100% of tips, gratuities, and service charges to their employees, without making any deductions. This means a decrease in profit for employers in the hospitality sector – but is a win for their employees who earn these tips but do not always reap the rewards of keeping them.

The Bill also requires that these tips must be distributed at the premises in which they were generated. This therefore bans employers from withholding tips, meaning customers will know that all tips will go directly to the hardworking members of staff who have earned them.

How will employers have to adapt to ensure compliance?

Employers affected by the proposed Bill would have to ensure that the distribution of tips, gratuities and service charges between their employees is fair. The Bill proposes that this ‘fairness’ be judged in line with a new Code of Practice which will be introduced to supplement the proposed legislation.

The Bill also requires an element of transparency from employers in how they distribute their tips. Therefore, employers must create their own written policy for the allocation of tips between their workers – so long as it is in accordance with the Code. This affords an element of flexibility to employers to ensure the Bill can be incorporated into their business model, while also applying it consistently to all their employees, including agency workers who are set to benefit in the same way as employees under this Bill.

The Bill also requires employers to keep a written record of how tips have been dealt with for three years from the date received. This will undoubtably aid in transparency and ensure compliance from the employer, as well as protect the employer from any potential claims against them by the employee with regards to distribution of tips.

Does the Bill also apply to agency workers?

Many companies are utilising the use of agency workers more so than ever before and historically, agency workers would miss out on receiving their fair share of tips. However, under this Bill agency workers would have a statutory right to receive a fair share of tips on the same basis as directly employed staff.

Under the Bill, agency workers cannot be excluded or disadvantaged simply because they are provided through an agency. Businesses must pass on the agency worker’s share of tips to the supplying agency, who are then required to pay those amounts to their workers within a month of receipt from the operator.

What are the implications on National Insurance and Income Tax? 

The draft new legislation requires 100% of the face value paid by customers to be distributed to workers with the exception of any statutory tax or National Insurance deductions required as a part of the normal payroll process.

When will the Bill become legislation? 

The Bill is now on to the House of Commons Report stage, which is due to take place on 20^th January. This will give MPs an opportunity to consider and suggest any amendments to the Bill. However, given that no amendments were made at the Committee stage – held in October – it’s highly likely that the current draft legislation will proceed to the House of Lords without any amendments. Therefore, the hospitality and leisure sector should act now and prepare for the proposed changes.

The Bill is a good starting point and positive news for workers in the hospitality sector. Minister for Small Business Jane Hunt has already pledged both Government support for the Bill and committed to allowing sufficient Parliamentary time to be made available to ensure its passage.

If you have any questions relating to The Employment (Allocation of Tips) Bill, do not hesitate to contact a member of our expert Employment Law team who would be happy to assist you.

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