Consultation outcome

Explanatory memorandum to the updated draft Code of Practice on fair and transparent distribution of tips

Updated 22 April 2024

1. Introduction

1.1. This explanatory memorandum has been prepared by the Department for Business and Trade and is laid before Parliament by Command of His Majesty.

2. Declaration

2.1. Kevin Hollinrake, Minister of State for Enterprise, Markets and Small Business at the Department for Business and Trade, confirms that this Explanatory Memorandum meets the required standard.

2.2. Anthony Morris, Deputy Director for Analysis and Wages at the Department for Business and Trade, confirms that this Explanatory Memorandum meets the required standard.

3. Contact

3.1. Tony Gordon at the Department for Business and Trade, nationalminimumwage@businessandtrade.gov.uk, can be contacted with any queries regarding this Code of Practice.

Part 1: explanation, and context, of the Code of Practice

4. Overview of the Instrument

What does the legislation do?

4.1. The Employment (Allocation of Tips) Act 2023 (“the Act”), once it fully comes into force, will make it a legal requirement for employers to pass on all tips, gratuities and service charges to workers, without deductions, and in a fair and transparent manner.

4.2. The Secretary of State for Business and Trade is empowered to issue a statutory Code of Practice to provide more information about the fair and transparent allocation and distribution of qualifying tips, gratuities and service charges. Regard must be had to the Code in determining what would be a fair allocation of these qualifying tips, gratuities and service charges. This will ensure that businesses and workers are informed and educated about proper processes, and ensure the provisions of the Act can be implemented and enforced.

Where does the legislation extend to, and apply?

4.3. The extent of this Code (that is, the jurisdiction(s) which the instrument forms part of the law of) is England and Wales and Scotland.

4.4. The territorial application of this Code (that is, where the instrument produces a practical effect) is England and Wales and Scotland.

4.5. Employment policy is devolved to Northern Ireland.

5. Policy context

What is being done and why?

5.1. The government is publishing an updated draft statutory Code of Practice on fair and transparent distribution of tips, which is subject to approval by Parliament. The Code provides overarching principles on what fairness is for the purposes of the Tipping Act, the areas in which employers need to make decisions to comply with their duties, and how they should apply these principles in their specific places of business.  This Code is intended to provide further guidance, beyond the Act, to employers, workers and the wider public, to encourage the smooth implementation of the requirements of the legislation.

What was the previous policy, how is this different?

5.2. The government believes that all tips should go to the workers who earn them. In 2009, it became illegal for employers to use tips to make up a worker’s entitlement to National Minimum Wage. In 2009, the government also issued a voluntary Code of Best Practice, which set out how employers should process tips in a fair and transparent manner. Because bad practice persisted from some employers, the government supported the passage of the Employment (Allocation of Tips) Act 2023, and the creation of a new Code of Practice with legal effect.

6. Legislative and legal context

How has the law changed?

6.1. The Employment (Allocation of Tips) Act was granted Royal Assent on 02 May 2023. It made a number of changes to the Employment Rights Act 1996, to include in law provision for how employers must deal with qualifying tips, gratuities and service charges, and for the Secretary of State to issue a Code of Practice to promote fairness and transparency. The law includes further provisions about the requirements on maintaining a written policy, tipping record keeping, and enforcement of all the provisions, which can ultimately result in a claim to an employment tribunal.

6.2. If the updated draft Code is approved by Parliament, the Secretary of State will issue the Code in the form of that draft and bring the Code into effect on a day specified in an order made by statutory instrument, which is subject to the made negative procedure.

Why was this approach taken to change the law?

6.3. This was the only possible approach to make the necessary changes.

7. Consultation

Summary of consultation outcome and methodology

7.1. The government published an initial draft Code in December 2023, and held a public consultation between December 2023 and February 2024. Following responses from employers, workers and other stakeholders, a limited number of changes have been made to the Code, and an updated version is published, alongside the government’s response to the public consultation.

7.2. Prior to the public consultation, the Department formally engaged with Acas in accordance with section 27Q(1)(a) of the Act.

8. Applicable guidance

8.1. Additional guidance, which will be non-statutory but will be intended to add further context to the measures, will be published on GOV.UK in due course.

Part 2: impact and the better regulation framework

9. Impact assessment

9.1. A full impact assessment has not been prepared for this Order or the Code of Practice on Fair and Transparent Distribution of Tips because the impacts have been considered in the impact assessment produced in relation to the Employment (Allocation of Tips) Act 2023

Impact on businesses, charities and voluntary bodies

9.2. The impact on business, charities or voluntary bodies is available in the impact assessment produced in relation to the Employment (Allocation of Tips) Act 2023.

9.3. The impact on the public sector is available in the impact assessment produced in relation to the Employment (Allocation of Tips) Act 2023.

10. Monitoring and review

What is the approach to monitoring and reviewing this legislation?

10.1. The approach to monitoring this legislation is to consider how effectively it encourages fair and transparent tipping practices from employers, through behavioural changes from those businesses who currently do not comply with the new requirements, and, where necessary, dispute resolution processes, and ultimately escalation to the employment tribunal.

10.2. The Code does not include a statutory review clause. A review clause is not appropriate or necessary, as there is already a provision for review of the Code in the Tipping Act (section 27P(2)).

Part 3: statements and matters of particular interest to parliament

11. Matters of special interest to Parliament

11.1. None.

12. European Convention on Human Rights

12.1. The Minister of State for Enterprise, Markets and Small Business has made the following statement regarding Human Rights:

“In my view the provisions of the Code of Practice on fair and transparent distribution of tips are compatible with the Convention rights.”

13. The Relevant European Union Acts

13.1. This instrument is not made under the European Union (Withdrawal) Act 2018, the European Union (Future Relationship) Act 2020 or the Retained EU Law (Revocation and Reform) Act 2023 (“relevant European Union Acts”).