The first thing to consider if an organisation receives tips from customers is whether they are ‘qualifying tips’, these include both employer-received tips and certain worker-received tips. Think of the service charge that gets added onto bill at a restaurant, this is an employer-received tip. If a customer places a cash tip into the hand of their waiter, it’s a worker-received tip. 

Any tip an employer has any control over is called a qualifying tip and its these tips that form the basis of the law.  For example, if cash tips are collected up by the employer and then distributed out to staff, this is a worker-received tip that falls under the definition of a ‘qualifying tip’.

You must have regard to the code of practice on fair and transparent distribution of tips before considering what a fair allocation would be.

The code sets out a list of factors that your client could consider, such as, the type of role or work, the employees’ length of service or customer intention.

Once employers have decided on a fair allocation, they need to consult with their workers to reach a broad agreement. 

Once an employer has a broad agreement as to how they will fairly allocate tips, a written policy must be created that outlines the process.

There are some employers who do not need a tips policy.

There are also employers who receive qualifying tips only on an ‘occasional and exceptional basis’. These employers will need to provide a statement to their workforce to the effect that they are not required by law to produce a policy together with the reason why. It’s not likely that tips received monthly will be classed as ‘occasional and exceptional’.

Employers who exert no control over their employee’s tips are not required to have a policy or a statement. Whilst not legally required, it may be advisable to explain this exemption to workers.

So, unless your client allows all employees to keep all their tips, all the time, you will need to make substantial changes to their documentation.

Employers who need to have a tips policy must also maintain a tipping record to log how each tip received has been dealt with. The tipping record must be kept for three years, beginning with the date on which the qualifying tip was paid.

Staff can make a written request to view the tipping record but there are specific rules about it, for example, a worker is only able to see the records that relate to them, not anyone else. 

It’s important to get all this right because workers can bring claims to an employment tribunal if it’s not done correctly.

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