What is a fair allocation of pooled tips between employees? Is there a definition of fairness?
Legislation is now in place stating that tips must be fairly distributed by an employer or Troncmaster between employees. How fairness is defined in practical terms, however, is less clear.
In this blog, I have dissected the legislation and the Code of Practice published by the Government to set the record straight where I can.
What does the legislation say?
The principle legislation is contained under section 27D(1) of the Employment Rights Act 1996, as follows:
27D How tips etc must be dealt with
(1) An employer must ensure that the total amount of the qualifying tips, gratuities and service charges paid at, or otherwise attributable to, a place of business of the employer is allocated fairly between workers of the employer at that place of business.
Doesn’t really help, does it?
So, let’s now look at the Employment (Allocation of Tips) Act 2023 and see if this sheds any further light on ‘fairness’. The legislation splits fairness into two separate headings, employer-allocated and independent troncs.
For employer-allocated tips, the Allocation of Tips Act mirrors the Employment Rights Act above. No further help there then!
For independent troncs, troncs run by a tronc master the Allocation of Tips Act states as follows;
(2) Where—
the employer makes arrangements for the total amount of the relevant tips to be allocated between workers of the employer at the place of business by an independent tronc operator, and
it is fair for the employer to make those arrangements,
the employer is to be treated as having ensured that the total amount of the relevant tips is allocated fairly between workers of the employer at the place of business in accordance with section 27D(1).
(3) Where—
the employer makes arrangements for a part of the total amount of the relevant tips to be allocated between workers of the employer at the place of business by an independent tronc operator, and
it is fair for the employer to make those arrangements,
the employer is to be treated as having ensured that part of the total amount of the relevant tips is allocated fairly between workers of the employer at the place of business in accordance with section 27D(1).
(4) In determining whether it would be fair for an employer to make the arrangements mentioned in subsection (2) or (3), regard must be had to the relevant provisions of any code of practice issued under this Part.
Again, no real help on what a fair allocation is!
Code of Practice (CoP)
There is more hope here, as there is a whole section of Fairness in the CoP. The CoP states as follows;
Fairness
This part of the code sets out the key principles of fairness for the Tipping Act and the code. It suggests how employers might wish to apply these to different aspects of developing and implementing a policy on how tips are treated.
It will be for each individual employer to determine which specific principles best apply to their business. In the event of unresolved disputes, it is ultimately for employment tribunals to decide whether the employer has acted in compliance with the law.
So far, so good, aside from saying, ‘it will be for each individual employer to determine which specific principles best apply to their business’. Explanation is given with one hand and taken away with the other. The employer decides what is fair.
The CoP then sets out areas to consider that may help employers and tronc masters decide if the allocation is fair. Let’s look at the factors listed.
Type of Role
Typically, roles are departmentalised, for instance, front of house and kitchen. It is not uncommon for servers in front of house to have a larger allocation than kitchen staff because they are customer-facing and can have a direct influence on what tips may be left. Of course, the quality of food from the kitchen is important, but most customers’ impressions will be dictated by the actual service they receive.
Basic Pay
Tips can be distributed based on employees’ pay on a points or percentage basis.
Hours Worked
This is an important factor to consider. If a tip distribution has consideration for hours worked, then it would be very difficult for fairness to be challenged. Of course, if an employee received greater amounts of tips in the same role for fewer hours worked, this would be unfair and open to challenge.
Seniority
Senior employees may contribute more to the customer experience, so it would not be unreasonable for them to receive a greater allocation from the pool than less senior employees. This could easily be classed as a fair practice.
Length of Service
Length of service works on the same basis as seniority. Employees who have worked for many years will understand hospitality, the business and the customer base. Indeed, customers may return because of the service delivered by experienced employees. It would be reasonable and fair, therefore, for the length of service to be a factor in the allocation.
No discrimination
One crucial and perhaps logical point from the CoP is that there must be no direct or indirect discrimination against a group or individual employee. This is common sense, and I hope it is followed by all employers anyway.
How involved should workers be in the allocation decision?
Should the workers have a say in how ‘their’ earned tips are allocated? I think that this must be the case and will ensure that there can be no challenge through an employment tribunal.
A mechanism is in place for tronc schemes through a tronc committee led by a Troncmaster. A tronc committee should have fair representation across the workforce, and as it is run by a Troncmaster, who is independent from the employer, the tronc committee can be involved and agree on the tips allocation.
Employees deciding MUST be fair.
Fairness is clearly a subjective matter, but ensuring that full consideration is taken of the views of all employees should ensure that tips are allocated fairly and in line with the spirit of the legislation.
Links to the legislation and CoP are below
Distributing tips fairly: statutory code of practice – GOV.UK
Employment (Allocation of Tips) Act 2023