Changes to the way tips and gratuities are distributed to staff

A private member’s bill has been working its way through parliament since June 2021, with the aim of creating a fairer system of dealing with tips and gratuities for employees. The bill gained cross-party support in the House of Commons in January this year, paving the way for the proposals to now become law.

The Employment (Allocation of Tips) Bill would amend the Employment Rights Act 1996, to require businesses to ensure that all tips, gratuities and service charges are paid to workers in full and without any deductions. It is expected that this legislation will benefit more than two million workers who often rely on the extra income from tips.

From an employers perspective, these changes are significant. There will be a strict time limit on employers to distribute tips received. They must be paid to workers by the end of the month following the month in which they were given. Agency workers will also be given new rights and must be awarded any tips and service charges on the same basis as directly employed staff. Agreements should be drawn up to divide the tips fairly, ensuring that all staff are included, such as kitchen and cleaning staff.

There will be a strict admin process to follow, with businesses required to keep detailed records about the collection of tips and their distribution to workers. These records can be requested by staff at any point, and any discrepancies may be used to challenge a business at an employment tribunal.

Employers are advised to consider setting up a ‘tronc’ system which sets out how tips, service charges and gratuities are pooled and distributed. Employers should allocate a ‘troncmaster’ who is responsible for administering funds and for providing the necessary HMRC and payroll data to ensure that tips are excluded from national insurance contributions.

If you are a smaller employer and concerned about these additional admin tasks, contact us for advice on the best way to manage these changes, on 0800 9995 121.