The Problem
In the hospitality and service industries in general, workers have long been tipped by customers indicating appreciation for exceptional services. However, there have been controversies in respect of the distribution of tips with reports of unfair practices such as employers withholding the tips, nonpayment of minimum wage if the worker has been paid a tip, failing to distribute tips equitably among the workers or tips being viewed as belonging to the employer and not the workers.
In the case of Wrottesley v Regent Street Florida Restaurant, waiters agreed with their employer to place all tips into a box (a system known as a troncmaster) and distribute them at the end of every week based on the waiters role, hours worked, or performance. Their weekly wage was below the minimum wage as prescribed under the Wages Regulations Order, but if added to the weekly tips, their total earning for the week would exceed the minimum wage. This made the employer refuse to pay the minimum wage. The court held that the tips from the customers were paid to the waiters and not to the employer. This meant the waiters voluntarily divided up their own money on a weekly basis. The tips were also not paid by the employer and therefore, could not be a determinant to the payment of the waiters weekly wage by the employer.
On the contrary, the court stated in the case of Nerva v R.L. & G. Ltd that tips paid by way of cheque or credit cards to the employer and redistributed to the workers, were the property of the employer and as such should be counted as a minimum wage and that the intentions of the customers had no part to play.
In response to these controversies, the UK introduced the Employment (Allocation of Tips) Act 2023 (the Tipping Act) which came into force on October 1, 2024. The Tipping Act seeks to rectify the disparity in tipping practices by mandating employers to allocate all tips, gratuities, and service charges to workers without deductions, save for those legally required, such as income tax and National Insurance
contributions. Such development boosts workplace fairness and protects workers rights.
What qualifies as a tip?
Under the Tipping Act, the method of payment such as card, cash, or app, does not determine whether a tip is a qualifying tip as the employers argued in the above cases. Instead, it is determined by whether the employer receives or exercises control over the distribution of tips. Therefore, where a worker receives tips either in cash or through digital means, directly without the control or involvement of the employer, it does not qualify as a tip under the Tipping Act.
Tips that are subject to the control of an employer are related to tips that are paid directly to the employer by customers as tips, either via card, QR code, mobile app, or other electronic means. This also includes non-monetary tips that have monetary value or can be exchanged into money such as vouchers, stamps, tokens, casino chips or similar items.
- The Act provides that qualifying tips, gratuities, and service charges (tips) means,
- a. employer-received tips, and
- b. worker-received tips which
- i. are subject to employer control, or
- ii. are connected with any other worker-received tips that are subject
- to employer control.
What qualifies as a tip?
- Qualifying workers
Employers are to distribute the tips fairly among the workers who work in the same place of business whether in a public or non- public place of business. Such workers include workers recruited either on permanent basis, contract, direct recruitment, or agency recruitment basis,
and working in the same location. Therefore, self-employed workers are not under the scope of the Tipping Act. The Code of Practice to the Tipping Act also serves as a guide in determining who is a qualified worker. - Fairness
Allocating equal tips to the workers does not necessarily mean fairness. However, employers are urged to distribute fairly taking into considerations such factors as: the role, basic pay, hours worked, seniority or level of responsibility, intention of the customer, etc. no form of discrimination is permitted. - Transparency
An employer must have a tipping policy. The policy is to include whether customers are required to pay tips, how the tips will be dealt with, and how allocation will be done. It must be made available to all workers. - Method of allocation and distribution
There are various methods of allocation of tips. The employer may decide to distribute directly or appoint an independent troncmaster. The troncmaster could either be a staff, external payroll, accountancy firm, or a staff agreed by the workers. The Tipping Act provides that tips are distributed no later than the end of the month following the month in which customers pay tips. - Dispute resolution
Employers are required to have a fair process to address disputes as it relates to tips. The Acas Code of Practice on disciplinary and grievance procedures should be complied with by employers and workers to resolve complaints.
However, where internal dispute resolution process fails, a worker can enforce their rights through the employment tribunal system. The complaint must be presented within 12 months of failure to comply with the Act.
