UK Government publishes draft tipping code of practice

The government has published a draft code of practice on fair and transparent distribution of tips. It follows the introduction of the Employment (Allocation of Tips) Act 2023 which received Royal Assent on 2 May last year, designed to make the practice of tipping in the hospitality sector a fair and transparent process. A consultation on the draft code is currently underway and the government says there will be further non-statutory guidance to follow to help employers interpret the legislation. The new laws are set to come into force on 1 July 2024, a bit later than we expected.

A reminder. The Act will create a legal obligation on employers to allocate all tips, gratuities and service charges to workers and ensure that the distribution is done fairly. The Act includes a number of measures, they key ones being:

1  It will be unlawful for businesses to refuse to pass on tips to workers
2  Tips must be allocated and paid to the worker (or the agency of an agency worker) by the end of the month following the month in which the tip was paid by the customer. So, if tips were received in September they must be distributed by the end of October 
3  If tips are received on more than an occasional and exceptional basis at a place of business, the employer will need a tipping policy and will need to keep tipping records, which workers can request sight of; and 
4  The legislation applies to all workers, including permanent employees, agency staff, casual workers, and those on zero-hours contracts

The draft Code is designed to help employers and workers understand the new law. It applies to all sectors where tips are paid, but will be particularly important in the hospitality sector, obviously. Whilst it is possible it could change as a result of the consultation; we think any changes are likely to be minor. 

UK Hospitality covers this, and sets out two key elements of the code of practice for members to be aware of in particular:

1  Employers should use a clear and objective set of factors to determine the allocation and distribution of tips. The choice of factors should be fair and reasonable given the circumstances and the nature of the individual businesses. So, fair allocation and distribution of tips doesn’t necessarily mean that employers must allocate the same proportion of tips to all workers. Legitimate reasons may exist for allocating different amounts.

2 Factors which could, reasonably, be considered by employers when setting up their tipping policy include:  
• Type of role or work
• Basic pay
• Individual and/or team performance
• Seniority or level of responsibility
• Length of time served with the employer
• Customer intention, although it’s not clear at this stage what that means

UK Hospitality’s CEO, Kate Nicholls, comments on the draft code. She says: ‘The code of practice has been much anticipated and it’s positive that it has finally been published so that the sector can provide feedback and begin to plan. On initial reading, we’re pleased that the code of practice recognises the variety of different business models within hospitality and that the code of practice is not too prescriptive, allowing tips to be based on the circumstances of a role, for example. We’ll be working closely with the Department of Business and Trade to provide feedback from members and ensure the final date of implementation allows businesses ample time to digest and implement the requirement under the code of practice.”

So let’s get a view on the code. The standout feature of the it is that it addresses the issue of fairness in terms of how employers distribute and allocate tips which is something the Act left open. Francis Keepfer works with a number of clients in the hospitality sector and earlier he joined me by phone from Manchester to discuss it:   

Francis Keepfer: “I think it's really interesting. Originally when the legislation came out it talked about the allocation of tips needing to be fair and transparent but we didn't really know what that meant. Now that we've got the statutory code, I think we're a little bit closer to knowing what that means. The interesting point, though, is that ‘fair and transparent’ doesn't necessarily mean the same thing for all employers. What might be fair and transparent for one employer might be different for another employer. It's all about the way that employers decide how to allocate those tips and the key message from the code is that they need to use a ‘clear and objective set of factors’. The code sets out some examples of what those factors may be: things like the type of role, the type of work, team performance, individual performance, level of responsibility. So those are some of the factors that employers need to take into account.”

Joe Glavina: “The code is clear that the fair allocation and distribution of tips doesn’t necessarily mean that employers must allocate the same proportion of tips to all workers. How will that work in practice?”

Francis Keepfer: “I think employers need to have a really clear method and methodology and rationale as to how they distribute those tips. So, as we talked about, the code does set out some example factors and it gives them as examples of clear and objective factors but reading through them, some of the examples, I suppose there is a suggestion that some of them might not be that objective. The code talks about customer intention, for example, which to me sounds a bit more like a subjective factor. So, I think employers will need to come up with their own factors and have a clear methodology that works for them and as part of that, as you mentioned, I think they need to be really, really careful and need to really take into account, and bear in mind, that in selecting the factors, and then in selecting how they distribute tips, that they're not unlawfully discriminating against one group. For example, there might be a risk where fewer tips are allocated to a group of workers which includes a disproportionate number of workers with a particular protected characteristic which might lead to unlawful indirect discrimination. So, that's something that employers need to really bake into their into their planning.”

Joe Glavina: “A key theme of the legislation is transparency and that is reflected in the code. So there is an important role here for HR, presumably, in making sure the policy is clear and well-communicated.”

Francis Keepfer: “Yes, absolutely. So, the code talks about the need to have a written policy, which is part of the legislation, but one of the key things that code says is that that policy needs to be written in plain language, which I don't think is something we have necessarily been notified of before so, again, it sounds kind of relatively simple having a having a policy setting out how each employer considers how it is distributing and allocating tips but there are these added requirements now. So, the policy must be written in plain language. This can be quite a complicated topic, particularly if an employer is using something like a Tronc system, so it’s an added layer of complexity for employers to think about.” 

Joe Glavina: “So finally, Francis, what’s your message to HR professionals watching this?”

Francis Keepfer: “I think employers need to be getting ready now, definitely. The full code and the Act are coming into force on 1 July 2024, so just under six months away now, and that's going to come around pretty quickly, I would say. For a long time, we've been waiting for this statutory code of practice and all of a sudden it's here. We are through the Christmas break and in the summer will be on us in no time at all so I think employers need to be acting now. As I’ve I mentioned, it can be quite a complicated process in terms of deciding on, and coming up with, a methodology as to how employers are going to allocate and distribute their tips fairly. They are going to have to draft a tipping policy which obviously need to be accessible to staff. There's also record keeping, relatively onerous record keeping obligations. Employers are going to need to keep a three-year record, effectively, of the amount of tips that were received, and how they were distributed, and how much was allocated to each worker. So that's really quite onerous, in my view. Also, as I say, they're also going to have to kind of come up with this process for resolving issues and concerns from staff. So, I think there's quite a lot of work to do ahead of 1 July 2024. We're going to get a further government response to the consultation, and a final version of the code in spring 2024 so that's even closer. So, I wouldn't be waiting until then to start taking action. I think we've got what will be a pretty final version of a code, subject to a few tweaks following the consultation, so I think the message is act now.”

The consultation on the code is currently underway and will run until 4.30pm on 22 February 2024. If you would like to respond to it you can. We’ve put a link to the consultation document in the transcript of this programme. 

LINKS
- Link to Employment (Allocation of Tips) Act 2023
- Link to draft Code of Practice on tipping fairly
- Link to UK Hospitality article