In this article, we delve into the challenges posed for Members Clubs by the Employment (Allocation of Tips) Act 2023 (the Act) and Code of Practice (“the Code”), and how best to navigate these changes effectively.

Background

Traditionally, Members Clubs have collected voluntary tips, gratuities, and service charges from customers, primarily through food and beverage services and/or gratuity amounts paid by members at intervals in recognition of their appreciation.

The purpose of the Act and the Code is to promote fairness and transparency in relation to the distribution of all qualifying tips, gratuities, and service charges (tips). Such distributions must be clear, objective, fair and reasonable for all workers.

Key point that Members Clubs must consider

Some of the key points to consider are:

• Fair allocation: You are permitted to distinguish between workers based on a "clear and objective set of factors" and are not obligated to "allocate the same proportion of tips to all workers". This may be determined by seniority, job roles, or duration of service. However, any allocation process must be equitable.

• Transparency: There is a requirement for transparency in the handling of tips. Workers, including agency workers, should understand how the tipping process operates and Members Clubs must have written policies outlining how tips are collected, allocated, and distributed, ensuring that workers understand and are even consulted in the process.

• Total tip: 100% of the tip must be paid to workers, so no deductions, for example administration costs such as card fees.

• Timely distribution: Tips must be paid out to workers by the end of the following month in which they’re collected. This eliminates any accumulation of tips over extended periods, so no reserves.

• Single venue: Tips paid at a single venue must be allocated to the workers at that venue, so no pooling of tips across venues.

• Varied contracts: It will be prohibited to negotiate with a worker to vary their contractual salary in return for a share of tips.

• Record-keeping: Members Clubs are required to maintain for a 3-year period accurate records of all tips received and distributed, which workers can request certain details every 3-months.

• Complaints: Workers can take grievances against their employer to an Employment Tribunal.

Is our ‘staff fund’ caught by the Act?

Members Clubs traditionally refer to gratuity amounts paid by members at intervals in recognition of their appreciation as a staff fund. Such funds are paid out to workers at set intervals.

If staff funds derive from payments made by a customer of an employer, which is received upon payment or subsequently by the employer or instead by a worker that becomes subject to employer control, those payments are caught. Alternatively, if a payment arrangement exists between an employer and another person under which staff funds derive from payments made by customers of the employer that are to be received by the other person instead of the employer, then those payments are also caught.

Tronc schemes for Members Clubs

To navigate these legislative requirements effectively, Members Clubs should consider arranging for a tronc scheme to be run by an independent tronc operator. The compliance conditions of the Act are met by doing so, provided it is fair for the Member Club to make such an arrangement.

By establishing a tronc scheme that meets the necessary HMRC criteria, all tips become eligible for both employers' and employees' NIC exemption. Given that employer and employee NIC total over 25%, this represents significant savings for both the employer and workers of the employer.

At Buzzacott, we specialise in assisting Members Clubs with compliance with both the Act and the Code and implementing tronc schemes tailored to their specific needs. Our Troncmaster Services ensure transparency, fairness, and full compliance with the law, allowing Members Clubs to navigate the changing landscape of tipping legislation with confidence. To learn more about how we can help your members club achieve legislative and HMRC compliance, get in touch.

Introducing a tronc has given us the platform to use Service Charge so much more effectively for our business. By rewarding the right people at the right times and giving our employees extra confidence in the transparency and security of the tronc, we have better engagement and can target more productivity from our teams which in turn generates rewards for all. The professional knowledge and confidence Buzzacott brings to the Troncmaster service has been fantastic. Client - People & Development Director

Contact us for our Tipping Act and Code of Practice Checklist