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 waiter’s 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.
