New rules on the taxation of tips are expected to come into effect from 1 October 2024.

The new law brings in an obligation on affected employers to ensure that the total amount of qualifying tips that are paid at, or otherwise attributable to, a place of business of the employer, are allocated fairly between workers.

Qualifying tips are those caught by the legislation and include both employer-received tips and certain worker-received tips where the employer or an associated person has some control over them. Qualifying tips must be allocated and distributed fairly among staff working in the business.

If on the other hand, the worker receives and keeps a tip, with no employer control or involvement, the tip is outside of the scope of the legislation.

Digital tipping, where a customer uses an app to directly tip members of staff, bypassing the employer altogether, is also out of scope.

A statutory Code of Practice has been created providing overarching principles on what fairness is, the areas in which employers need to make decisions to comply with their duties, and how they should apply these principles in their specific place of business.

A written policy is also needed where tips are paid, and it must include:

  • whether the employer requires or encourages customers to pay tips; and
  • how the employer ensures that all qualifying tips paid at, or otherwise attributable to, the place of business are dealt with, including how the employer allocates tips between workers.

The policy must be written in plain language, and employers must provide an accessible format for any worker with a disability, on request.

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