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Foodservice operators in the UK, such as bakery cafés and coffee shops, will not be allowed to hold back any tips or service charges from employees following a new draft code of practice published by the Department for Business & Trade.

The code, which comes into effect on 1 July 2024, is designed to promote fairness and transparency in the distribution of tips. It relates to the Employment (Allocation of Tips) Act 2023, which received Royal Assent back in May and amends the Employment Rights Act 1996.

This Tipping Act states that employers are required to pass on all tips, gratuities, and service charges to workers without deductions, except in very limited scenarios such as deduction of income tax.

Tips that qualify under the act are defined as employer-received tips or as certain worker-received tips that are subject to control or significant influence over by the employer – this is said to be most commonly demonstrated when employers first receive the money and then allocate it to workers.

Likewise, a cash tip received and kept by a worker, with no employer control or involvement, would be deemed to be out of scope for the act.

Additionally, the method of payment (ie. made by card, cash or via an alternative method) does not determine whether a tip is a qualifying tip or not, while a non-monetary tip such as a voucher or item with a fixed value can be regarded as a qualifying tip if received or controlled by the employer.

An employer may receive the tips directly and then pay workers their fair share as part of the next payroll cycle.

Regarding a timescale for handling of tips, the act states that employers must ensure all tips are passed to staff by the end of the following month from when they were received – for example, a tip on 23 June must be distributed by 31 July at the latest.

While employers are not required to allocate the same proportion of tips to all workers, allowing for legitimate reasons to chose different distribution proportions, they are advised to use a clear and objective set of factors to determine the allocation. This should be fair and reasonable given the circumstances and the nature of the individual business.

Among the factors to consider when deciding an appropriate share of tips for each employee are the type of role, performance, seniority, length of time served, and customer intention. Any form of unlawful discrimination must be avoided by the employer, who must also take care not to discriminate indirectly or unintentionally.

As outlined in the draft code, employers must maintain a written policy on how tips are dealt with at their place of business, and ensure this is made available to all their workers. It also recommends for employers to consult with workers to seek broad agreement that the tips policy is fair, reasonable and clear.

Further guidance is to be published in due course to help employers and workers interpret the new legislation, which applies to businesses in England, Scotland, and Wales and will be reviewed periodically to ensure it remains up to date.

You can view the full draft code of practice here, and also respond to a consultation on it here (until 22 February 2024).