Speaker: Emma Anglade-Ravez
Emma Anglade-Ravez: The Employment (Allocation of Tips) Act 2023 came into force on the first of October 2024 and amends the Employment Rights Act 1996. The Act aims to ensure the fair and transparent allocation of tips, gratuities and service charges by employers and hirers. In line with this new legislation, we have updated our legal guide and created a new policy for our members. If you would like a more in-depth overview, I would recommend looking at those documents as well as the statutory code of practice published by the DBT. In this video, I will summarise higher obligations, touch on liability and answer a few frequently asked questions. So first of all, a summary of higher obligations. Under the Act, clients must have a written policy addressing how they deal with qualifying tips, The policy should also cover how tips are distributed to eligible agency workers. The policy and any amended versions of the policy should be made available to all workers at the client's place of business. Clients are also required to keep records of qualifying tips. This requirement involves for example, creating a record of how every qualifying tip is paid and maintaining that record for a period of three years from the date on which the qualifying tip was paid. Each client must also determine a clear and objective set of factors that it will use to allocate qualifying tips among workers. The statutory code explains that for tips to be allocated fairly, all workers do not necessarily need to receive the same proportion of tips. However, the factors used to determine how tips are allocated must be fair and reasonable. For example, choosing to distribute tips amongst workers, working evenings could indirectly discriminate against women with caring responsibilities who are unable to work evening shifts. For that reason, before supplying workers to a client who receives qualifying tips, REC members should request the client's policy on the allocation of tips to ensure it applies to agency workers fairly. If the client does not provide their tips policy or does not have one when they should have one, employment business might wish to take the commercial decision to not supply workers to that client to avoid being in breach of the Act. Clients are also required to pay any qualifying tips with respect to an eligible agency worker to the employment business no later than the end of the month following the month in which the tip was paid. This means that a qualifying tip paid on the 10th of October should be paid to the employment business by the client no later than the 30th of November. In turn the employment business will have to pay that tip to the worker before the end of the month after the month in which it received the payment from the client. This means that a qualifying tip received from the hirer on the 20th of November should be paid to a worker by the 31st of December. The client should pay qualifying tips to the employment business without any deductions. And the employment business will pay the tips to workers subject to legally permitted deductions only such as income tax and employees national insurance contributions. Next, regarding liability, a worker could bring a claim against both the client and the employment business for breaches of their respective obligations under the Act. For example, a client could be held liable if they do not allocate qualifying tips fairly or if they fail to pay qualifying tips to the employment business in time. An employment business could be held liable if they do not pay the tips to the worker in time. Under the Act, the time limit for bringing such claims to an employment tribunal is 12 months from the date that the client or the employment business fails to comply with its duties. However, similarly to other claims, an employment tribunal has discretion to allow a claim to be brought after the 12 month time limit where a worker is able to demonstrate that it was not reasonably practicable for the claim to be brought within the time limit. It is worth noting that the Act is silent on the liability of umbrella companies. And therefore, we would recommend that employment businesses engaging umbrella company workers ensure that liability can be passed on to the umbrella company under the terms of their contract.
Emma Anglade-Ravez: Lastly, I will address some questions we have frequently received from members on the Allocation of Tips Act. Members have flagged that processing tips will result in an admin cost and have asked if they could charge the client a margin on that tip. As I previously addressed in this video, aside from legally permissible deductions, the whole tip must go to the worker. Therefore, employment businesses cannot deduct their margin from the tip payable to the worker. However, you can charge your client for cost your business incurs for example, employers National Insurance contributions. But this would need to be contractually agreed in your terms of business with the client. If you are using our model terms, it would be included within clause six, clause 6.1.6 states that your charges to the client also includes your commission, which is calculated as a percentage of the worker's hourly rate. Clause 6.2 also allows you to reserve the right to vary the charges by giving written notice to the client in order to comply with any additional liability imposed by statute or other legal requirement or entitlement. As you are under a legal obligation to pay workers tips and your business will incur a cost as a result, you may rely on this clause to vary the charges to the client to recover that cost. Similarly, members have asked if they could charge the VAT on the tips to the clients. However, you engage the temporary worker, unless you can apply a consent concession or exemption, you should charge VAT at the standard rate on the whole cost of supplying that worker to the client. This includes your margin plus the gross amount paid to the worker together with employers National Insurance contributions, holiday pay, pension contributions if applicable, or the gross amount paid to the intermediary. This would include tips paid to the worker. Some members have also inquired about a situation where a client uses a trunk operator which already makes the deductions for income tax and employs National Insurance contributions for from the tip. So when it comes to agency workers, as the employment business is the employer for tax purposes, it should be the employment business that makes PAYE deductions not the client. If a client uses a trunk operator which makes those deductions on their behalf. The client must review their system to ensure they pass on the full qualifying tip to the employment business who will then make those deductions before paying the tip to the worker. Lastly, we have also received questions surrounding the agency worker regulations and how the regulations interact with the Allocation of Tips Act. So tips are are a day one, right? This means that if an agency worker is eligible under the Allocation of Tips Act to receive qualifying tips, then they will be entitled to it from day one and will not have to wait until they complete the 12 week qualifying period. After 12 weeks. It may be that the amount of qualifying tips a worker receives changes as they will be entitled to receive the same amount of tips as a comparable employee. However, depending on the factors, the client uses to determine how tips are allocated and distributed, some of these may not apply to agency workers. Meaning that even after 12 weeks on assignment, they may not receive the exact same number of tips as a comparable employee. For example, agency workers would not be entitled to tips allocated to employees based on their length of service as it would not be directly attributable to the amount and quality of work done. Employment businesses should nevertheless ensure that the factors the client uses to allocate and distribute qualifying tips do not unreasonably leave out agency workers.
