The Employment (Allocation of Tips) Act (also known as the Fair Tipping Act) is officially live.
So, what does this mean for businesses and workers in the hospitality industry? Are there any last-minute changes to the legislation?
Keep reading to find out everything you need to know about the Act—what’s included, how it impacts tipping practices, and the steps businesses need to take to ensure compliance. In this blog, we break down everything you need to know.
The old tipping landscape
There are currently no regulations about the distribution of tips from card payments. This means that when staff receive tips from customers, it’s legal for business owners to keep these tips and invest them back into the business. When this happens, employees lose out on hard-earned money.
In 2023, the UK government published a draft code of practice about the fair and transparent distribution of tips. The bill makes it illegal for employers to withhold tips from employees, ensuring that the funds are distributed fairly amongst the workforce.
In other words, it ensures that employees get their fair share of tips. In fact, it’s estimated that millions of workers will take home an estimated £200 million more because of the new legislation.
The act was supposed to come into effect on the 1st of July, 2024 in England, Scotland, and Wales. Ireland has its own regulations for tips, gratuities, and service charges.
But guess what?
The deadline has been pushed to 1st October 2024.
The delay allows hospitality businesses more time to prepare for the new legislation and introduce any changes required to comply with it.
What are the new regulatory changes coming in October?
As of 1 October, the new changes will include:
- Distributing tips to workers without any deductions, ensuring that payments are given to employees no later than the following month — including those on zero-hour contracts.
- Working out exactly how much each employee is owed. An employee working a 35-hour week may get a higher percentage of tips than an employee working a 20-hour week. So long as employers are clear and transparent about how they distribute tips and why they’re doing it a certain way, they’re good to go.
- Creating a written policy on how you plan to distribute tips. All employees must be able to access and read (or listen to) the document. Everyone must also agree that the process is fair.
- Recording how you manage tips. Whether using technology or recording tips manually, employers must record every tip, gratuity, and service charge to ensure it’s all distributed fairly.
Employees can request information from the tipping record at any time, and you must give it to them. This ensures total clarity and transparency, and gives employees the evidence they need to bring claims to an Employment Tribunal — although hopefully, this won’t be an issue for you!
All of these changes apply to restaurants, bars, cafes — essentially any business operating in hospitality.
Food for thought 💡 There’s a chance that these requirements may change before the legislation goes live in October. There are already some new discussions on the scene, such as how the legislation applies to digital tipping and non-monetary tips. Stay tuned for updates!
What can you do to adapt to the changes?
The most effective thing you can do to stay on top of these new regulations is to implement technology.
With the right system in place, you can:
- Provide transparency for employees. With all your tip records in a central location, it’s easy for employees to access this information. If they want to see how many tips they received or what percentage they were paid, they can head straight to the system to view it.
- Centralise all tip payments. It’s easier for you to manage tip distribution if you have all tip payments in one place. You can see how much you’ve made from tip payments in relation to your total revenue, and how to distribute the payments fairly based on who was working certain shifts.
- Automatically calculate fair tip distribution. Manually calculating and distributing tip payments sounds like a lot of work. Spoiler alert: it is. With the right technology, you can let the system do the heavy lifting. It can automatically calculate your total tips, and how much each employee is owed based on their working hours. It’s quick, fair, and easy to manage.
- Keep a record of all tip payments. The new legislation requires you to record all the tips you receive. With technology, you can easily store everything virtually.
So now the question is, what technology should you use?
Take a look at Nory Tips!
Nory Tips is a fast and efficient way to automate your tip management. From the initial customer payment to payroll processing, we do the heavy lifting so you don’t have to. It’s fair, fast, and transparent — all things that align with the new legislation coming into effect.
But how exactly does the system work?
The system compares employee worked hours and the amount of tips made to determine how much each employee receives. Let’s use an example to demonstrate:
Imagine that the Tip Pool for one shift is £1000. Employees worked a total of 25 hours. That’s £1,000 divided by 25 hours, leaving £40 in tips per hour worked.
Now, let’s break it down further based on how many hours each staff member worked.
- Employee #1 worked 10 hours and receives £400
- Employee #2 worked 7 hours and receives £280
- Employee #3 worked 8 hours and receives £320
The system calculates what everyone is owed based on the total tip payments and the hours they worked.
Nory success story 🥳 One of our customers increased the average pay of employees by 10% in the first 6 weeks of using Nory Tips!
Use Nory Tips for seamless tip distribution
The new tipping legislation is coming into force. Sure, it’s been delayed — but it’s still happening. For hospitality businesses, this means preparing to accurately distribute tip payments to your workforce.
The ideal solution? Putting systems in place that can accurately allocate tips to your staff. It saves you the time of manually doing it yourself, and ensures total accuracy based on the amount of tips you receive and the hours that staff work.
Plus, it keeps a solid record of all your tips, which is a requirement of the legislation.
Get ahead of the game and set yourself up for success with Nory Tips. Reach out to the team to get the ball rolling!
FAQs about the Allocation of Tips Act
What is the Allocation of Tips Act 2024?
In simple terms, the Fair Tipping Act is a new law that requires employees to distribute tips fairly amongst workers.
In more complicated terms, the exact specifics of the legislation are still under discussion. The launch date has been pushed to the 1st of October, so we’re eagerly waiting to see what the final legislation looks like and exactly how it’ll impact the industry.
How do you allocate tips?
It’s up to you how you allocate tips to your staff. You can fairly distribute them based on working hours and the amount of tips received, or you can split the tips evenly between the entire workforce.
Until the new legislation comes into effect on the 1st of October, you don’t legally have to allocate tips to your workforce. However, not doing so can cause serious damage to team morale and impact your retention rates. In a time where hospitality staff are hard to come by, keeping your existing workforce happy is a top priority.
How do tips get distributed?
Tips can either be distributed manually by the employer, which involves working out how many tips should go to each employee. Or, you can use technology to automatically distribute tips to your workforce based on the number of hours they work and the number of tips they receive.
