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The Settlement Agreement Solicitor

Episode 13: The New Tip Allocation Laws and Settlement Agreements

Hello, and welcome back to The Settlement Agreement Solicitor podcast. I’m your host, Geoffrey Caesar, a solicitor with over 20 years of experience specialising in settlement agreements. In today’s episode, we’ll dive into a topic that’s especially relevant for workers in hospitality and service industries: the new tip allocation laws, which came into force on 1st October 2024, with the Employment (Allocation of Tips) Act 2023. We’ll explore what these changes mean for both employers and workers, and importantly, how a settlement agreement can help if disputes arise.

The New Law on Tip Allocation

Let’s start with the basics. On 1st October 2024, the Employment (Allocation of Tips) Act 2023 came into force, alongside the statutory Code of Practice on Fair and Transparent Distribution of Tips. This new law introduces a number of obligations for employers, ensuring that workers—whether they’re permanent employees or agency workers—receive their tips, gratuities, and service charges in full. It also sets out that these must be distributed in a fair and transparent way.

What does this mean for workers on the ground? Essentially, all workers directly involved in providing service to customers must be included when distributing tips. Employers need to be clear and fair about how they allocate those tips. So, for example, if you’re working as a server in a restaurant, your employer must have a written tipping policy outlining how tips will be shared, and this policy should be justifiable and transparent.

Guidance for Employers

The government also published non-statutory guidance on 27th September 2024 to help employers implement these new obligations. This guidance offers templates for things like:

A tipping policy.
A request for a tipping record.
A tipping record itself.

This guidance is crucial because it reminds employers that all workers, including agency workers, must be treated equally. For instance, if an employer has a policy where less-experienced workers receive a smaller percentage of tips during their probationary period, this policy must apply to both agency and permanent workers.

Another key point is that tips must be distributed at the place of business where they are received. So, if you’re working at a chain or a business with multiple locations, tips collected at your branch can’t be pooled and distributed to other locations. This ensures fairness within each site. For example, at a holiday camp, tips collected at various food and drink service locations can be pooled as long as they are part of the same operational site.

Dispute Resolution

As with any law, there’s always the possibility of disputes. What happens if there’s a disagreement over how tips are distributed? The guidance suggests that employers and workers should try to resolve disputes internally first. Employers can seek advice from Acas if needed. However, suppose an employer doesn’t comply with the legal requirements to distribute tips fairly, maintain records, or have a written tipping policy. In that case, workers can take their complaint to an employment tribunal.

There are time limits for bringing claims, and remedies vary depending on the nature of the breach. This could lead to compensation for the worker, and it’s not uncommon for these disputes to escalate, especially if there’s confusion about the tipping policy or if tips have been unfairly withheld.

How Can a Settlement Agreement Help?

This brings us to the heart of today’s discussion—how can a settlement agreement help if there’s a dispute over tip allocation?

A settlement agreement is an ideal tool for resolving disputes before they reach an employment tribunal. If a worker feels they haven’t received their fair share of tips, or if there’s been a lack of transparency in how the tips are distributed, a settlement agreement can offer a mutually agreed resolution. Rather than facing the uncertainty and potential costs of litigation, both the employer and worker can come to terms that are fair and agreeable.

Here’s how a settlement agreement could work in the context of a tip allocation dispute:

Resolving Confusion Over Tip Policies
If an employer’s tipping policy isn’t clear or hasn’t been communicated properly, a worker might feel entitled to more than they’ve received. A settlement agreement can allow the employer to compensate the worker in a way that settles the matter privately, without admitting liability.

Compensating for Lost Tips
If it’s proven that a worker has been short-changed, whether by a mistake or a breach of the tipping policy, a settlement agreement can provide for compensation. This helps the employer avoid the risk of a tribunal claim and protects the worker’s right to fair treatment.

Confidentiality Provisions
In many cases, employers may want to avoid negative publicity or internal disruption caused by disputes over tip allocation. A settlement agreement can include a confidentiality clause, ensuring that neither party discloses the details of the dispute or the settlement reached.

Preserving Employment Relationships
Tip disputes can be sensitive, especially in industries where tipping is a significant part of a worker’s income. A settlement agreement can allow both the employer and worker to resolve the issue without damaging their ongoing working relationship.

Avoiding Tribunal Costs and Delays
Taking a dispute to an employment tribunal can be costly and time-consuming for both sides. With a settlement agreement, you can settle the dispute quickly, avoiding the lengthy tribunal process, and typically receive payment within 14 to 28 days.

Final Thoughts

The new tip allocation laws are designed to ensure fairness and transparency for workers who rely on tips, gratuities, and service charges as part of their income. Employers need to be aware of their obligations, and workers should understand their rights under the Employment (Allocation of Tips) Act 2023.

If a dispute does arise, a settlement agreement can be a powerful tool for resolving the issue without the need for formal legal proceedings. It’s quicker, often more amicable, and allows both parties to move on without the stress and uncertainty of a tribunal.

If you are involved in a tip dispute, feel free to get in touch with me. I’m here to provide guidance on the legal aspects and help you make the best decision for your situation.

That’s all for this episode of The Settlement Agreement Solicitor. Don’t forget to subscribe for more insights and practical advice on employment law and settlement agreements. Until next time, I’m Geoffrey Caesar. Thanks for listening!