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Allocation of Tips Act 2023
How Will The New Employment (Allocation of Tips) Act 2023 Affect The Hospitality and Leisure Industries?
The landscape of tipping and service charges in the UK is set to undergo a significant transformation with the introduction of the Employment (Allocation of Tips) Act 2023 later this year.
This legislation aims to eliminate uncertainties surrounding the allocation of service charges and other tips, ensuring that employees receive their due share.
In this article, we delve into the current system and the forthcoming changes that businesses in the leisure and hospitality sectors should be aware of.
Current System: How Does It Work?
At present, “tipping” typically encompasses both tips (whether in cash or card) and service charges, which can be discretionary or mandatory. When customers give cash tips directly to staff, these tips essentially become the property of the employee. While their employment contract may stipulate otherwise, it is generally up to the individual to decide whether to share these tips with colleagues.
On the other hand, when tips and service charges are collected by the employer—whether through a tip jar on the counter or a 12.5% service charge added to the bill—the distribution methods can vary. These range from the employer determining the allocation of tips and service charges to the staff members themselves agreeing on the day’s distribution of cash tips.
Additionally, many businesses put in place a “tronc” system, being a mechanism which allows tips and service charges to be pooled and distributed among staff by a designated “Troncmaster” without direction from the employer. It is worth noting that the chosen method of collection and distribution carries tax and national insurance implications, which will not be covered in this article.
Currently, there are no restrictions on businesses deducting amounts from the collected tips and service charges before distributing them to staff. While there may be valid reasons for such deductions—such as the operational costs of administering a tronc scheme—media attention has increasingly focused on employers making significant deductions from service charges, particularly as around 80% of UK tipping now occurs via card payments.
Five key changes Under the Employment (Allocation of Tips) Act 2023 are as follows:
1. Prohibition of Deductions
Under the new legislation, businesses will no longer be permitted to make deductions from the tips and service charges collected. Every penny collected must be distributed to the staff, with deductions only permissible for tax or as otherwise authorised by law.
2. Obligation to Allocate Tips Fairly
Businesses will be obligated to allocate tips and service charges “fairly” among workers. Although the legislation does not specify what constitutes fair allocation, this is expected to be clarified in due course. Employers will be required to have a written policy outlining the fair, transparent, and consistent distribution of tips.
3. Time Limit for Payment
Tips and service charges must be paid to eligible workers no later than the end of the month following the month in which the tip or service charge was received from th
4. Record-Keeping Requirements
Employers must maintain records of the allocation and distribution of tips for a minimum of three years from the date they are received.
5. Right to Claim in Employment Tribunal
Employees will have a separate right to bring a claim in an employment tribunal if there is a breach of these requirements. The tribunal may, among other remedies, order compensation of up to £5,000 to an affected employee to compensate for any losses suffered.
Final comments
The implications of these changes are significant, particularly for employers in the leisure and hospitality sectors. With businesses already facing financial challenges, the additional administrative burden of distributing tips and service charges could strain resources. One alternative may be to pass these costs back onto customers, but this is unlikely to be popular in the current economic climate.
In light of the forthcoming legislation, it is prudent for businesses to start implementing the necessary policies, structures, and procedures now. By doing so, businesses can be better prepared to comply with the new requirements and ensure compliance from the outset.
To discuss any of the points raised in this article, please contact Adam Convisser or fill in the form below.
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CMA Issues Greenwashing Guidance to Fashion Industry: What Brands Need to Know
On 18 September 2023, the UK Competition and Markets Authority (CMA) issued important guidance to the fashion industry regarding “greenwashing.”
This follows concerns that companies may be making misleading environmental claims, which can deceive consumers and harm competitors that adhere to stricter sustainability standards.
Greenwashing refers to unsubstantiated or exaggerated claims about a product’s environmental benefits. The CMA’s new guidance outlines how businesses in the fashion sector should ensure that their eco-friendly claims are accurate, transparent, and comply with consumer protection laws.
Key Points From The CMA Guidance:
- Substantiated Claims: Any claims about sustainability must be backed by credible evidence. For instance, if a brand claims its clothing is made from “recycled materials,” it should clearly specify the percentage of recycled content and provide proof. Each business in a supply chain has a responsibility to ensure that its claims are accurate and substantiated.
- Avoid Vague Language: Phrases such as “environmentally friendly” or “sustainable” should be used cautiously. The CMA advises that environmental claims must be clear and accurate whether they are made on a product, in advertising materials, in store or online.
- Lifecycle Impact: Environmental claims should consider the entire lifecycle of a product, from production to disposal. If a company makes a claim based on a specific part of a product’s life cycle, then it should provide a clear and prominent summary of the aspect of the life cycle to which the claim relates, as well as access to further information.
- Comparative Claims: If a company makes comparisons with competitors regarding sustainability, those comparisons must be fair and verifiable. For instance, stating that a product is “greener than the market average” must be supported by clear data and benchmarks. Consumers should be able to make informed choices about competing products and businesses, or between different versions of the same product.
- Full Transparency: Brands should provide full information about the environmental impact of their products, including any limitations in their sustainability claims. Transparency helps consumers make informed choices and fosters trust in the brand.
Implications for the Fashion Industry
The CMA’s guidance signals an increased focus on consumer rights in relation to environmental claims. Businesses found in breach of these principles may face enforcement actions, including fines or legal action under the UK’s consumer protection laws.
Fashion brands should review their current marketing practices and ensure that all environmental claims are truthful, specific, and supported by evidence. It is vital to communicate any green credentials clearly and to avoid misleading consumers, as regulators and consumers alike are placing greater scrutiny on sustainability efforts.
To discuss any of the points raised in this article, please contact Ann-Maree Blake or fill in the form below.
Five Key Legal Concerns When Buying a Business in Administration
Purchasing a business in administration can be a great strategic move. However, this process comes with its own set of risks. Below we explore the five key legal concerns that buyers should consider when purchasing a business in administration.
1. Establishing What Is For Sale
The information in sales particulars will not be guaranteed, so a physical inspection of the assets is recommended. Some assets might be subject to retention of title or lease agreements and so will not be the seller’s to sell.
Debts owed to the seller generally remain with the seller and are collected by the administrators. The buyer may want to consider making an offer on the debts or negotiating an arrangement whereby the buyer collects the debts on behalf of the administrators for a fee.
2. Legal Due Diligence
Undertaking comprehensive legal due diligence is crucial when considering the acquisition of a business in administration. This involves a review of (amongst other things) the target company’s commercial agreements, any ongoing legal disputes, intellectual property rights and regulatory compliance. However, there may be little time available for the buyer to carry out thorough due diligence due to completion deadlines and in any event, generally, there will be no right of recourse if information provided by the administrators is incorrect. It is therefore important to strike the right balance of legal due diligence when buying a business in administration.
3. Warranties, Representations And Indemnities
Administrators act as agents of the seller. They will accept no personal liability under the sale agreement and will give no warranties about the assets sold. As a result, the normal warranties that a seller might give will be very limited or excluded entirely. Buyers should approach the purchase with the understanding that they are likely to receive the business on an “as-is” basis, with no assurances about the condition or performance of the business or its assets.
Conversely, the administrator will likely require the buyer to provide indemnities to the administrator and seller in respect of any liabilities that arise post-completion such as any employment related claims under The UK Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) or any ongoing contractual obligations that the buyer agreed to take over.
4. Employment Law
Navigating employment related legal issues is crucial when acquiring a business in administration. Where possible, buyers should examine existing employment contracts and any pending employee disputes. TUPE generally applies where the seller company is in administration. As a result, employees assigned to the business that is being sold will be transferred automatically on their existing employment terms to the buyer. It is therefore not possible to elect to choose certain employees and employment related liabilities in the same way as other assets and liabilities.
TUPE is particularly important in an administration sale context as TUPE related claims are likely to be focussed on the buyer given the seller’s insolvency and, as mentioned above, administrators will usually require broad indemnities from buyers for any liability as a result of failing to comply with TUPE.
5. Customer and Supplier Relationships
Maintaining strong relationships with customers and suppliers is essential for the continued success of any business. Buyers should assess the impact of the acquisition on existing customer and supplier relationships. Reviewing and understanding the contractual obligations of the target business is crucial. Existing contracts with customers, suppliers, and other stakeholders should be reviewed to assess transferability of contracts, identifying any change of control provisions, and understanding the consequences of the acquisition on ongoing agreements. Your legal advisor can provide guidance on contract novation, renegotiation, or termination to ensure a seamless transition and avoid legal disputes.
Conclusion
While buying a business in administration presents unique opportunities, there are inherent risks that require careful consideration. At Quastels, we have experienced legal advisors in our Corporate Department to draft and review business sale agreements and all related documents to ensure that the buyer’s interests are protected to the fullest extent within the constraints of the administration sale.
To discuss any of the points raised in this article, please contact Nilam Davé or fill in the form below.