LEGAL UPDATES / EMPLOYMENT LAW
The Employment (Allocation of Tips) Act 2023 / October 2024
There was a new legislation in October 2024 that will make it unlawful for employers to withhold tips or service charges from their employees.
This change will impact thousands of businesses and millions of workers. Both the employee and the business owner needs to ensure they fully understand this law, and this blog is designed to do this.
The Employment (Allocation of Tips) Act 2023 (“the Tips Act”) will come into force on 1 October 2024, imposing new obligations on employers to ensure that tips are allocated fairly among workers. The statutory Code of Practice on Fair and Transparent Distribution of Tips is due to be introduced on the same date.
These new rules include some important practical changes for employers in the hospitality, leisure and service industries to be aware of.
There are more and more businesses in the UK seeking tips or service charges from their customer. Customers generally tip or pay service charges in restaurants, bars and taxi businesses. Then some businesses don’t always have a tipping culture but porters, housekeeping, tour guides, hairdressers or barbers also have a tipping culture. These businesses will need to follow the clear tipping processes and paperwork in this law.
Employers can still use discretion over tip allocation but must allocate tips fairly under the new Code of Practice.
Employers must publish and distribute a clear policy on tip allocation and keep records of all tips for three years.
Tips are paid by consumers at their discretion to reward excellent service. They are not added to the bill service charges but are included as an additional percentage added to a customer’s bill. Business owners set the amount or percentage rate of a service charge. Although not classified as tips, the new laws apply to service charges too, so they must also be shared fairly with all employees in the business.
Another really important part of the Act that small businesses might get wrong is agency workers and their rights. Agency workers will be eligible for the same proportion of tips as directly employed staff and are subject to the same rules on fair allocation and timely payments. Employers will have to pass on the agency worker’s share of tips to the recruitment agency that supplied them, who are then required to pay those amounts to their workers within a month of receipt. Agencies will also be responsible for deducting the income tax due, as well as National Insurance where the statutory disregard does not apply.
Tips that are received at a specific venue must be allocated to the staff in that venue, not across multiple locations.
Decide how you will keep records; ensure you have a tips record-keeping system in place so that staff can request access to this information, as set out in the new law. This will be the hardest and most timely part of the law.
Make Work Pay 2025 / 26
Labour’s plan to make work pay will ensure more people stay in work, make work more family-friendly and improve living standards, putting more money in working people’s pockets to spend, boosting economic growth, resilience and conditions for innovation. Stronger trade unions and collective bargaining will be key to tackling problems of insecurity, inequality, discrimination, enforcement and low pay.
The last Labour government lifted basic minimum rights in the workplace by introducing the National Minimum Wage, the 48-hour working week, 28 days paid holiday, parental leave, and greater protection from unfair dismissal. The Tories opposed every one of them.
But today they are the cornerstone of our working lives. Labour, working with businesses and trade unions, has transformed the world of work before, and we can do so again. A step change is needed in how working people exercise control over their working lives, and businesses need urgent action to address our poor productivity.
Labour is pro-worker and pro-business, and we will work in partnership with trade unions and business to deliver our New Deal.
Right To Switch Off / Plan 2025 / 26
The new government pledged to introduce a right to switch off so workers’ homes did not become 24/7 offices, with ministers exploring models in other countries, particularly in Ireland and Belgium, where workers already have a similar right.
Forming part of its Plan to Make Work Pay, the government said the right to switch off would allow workers and employers to have “constructive conversations and work together on bespoke workplace policies or contractual terms that benefit both parties”.
The policy would also reportedly involve a code of practice agreed by employers and employees. The Times reported that employers who repeatedly breach an agreement could have thousands of pounds added to their compensation bills if they are taken to a tribunal.
HR teams begin by analysing employee issues and preferences and discussing potential approaches. “It’s important to include people at all levels of seniority, especially those with alternative working patterns. Leadership set the culture, and HR would be instrumental in fostering an attitudinal shift whereby employees and managers acknowledge the boundaries between work and personal life. Any policy would need to be seen to be fair and consistent in application,” she explained.
HR would need to develop and implement a right to switch off policy, which would mean “freeing up existing HR resources to look at what this will mean in practice or get an external expert involved to interpret changes and advise”.
HR will need to establish clear and specific guidelines on out-of-hours contact, detailing in what circumstances managers are permitted to contact their employees.
Fire and Rehire Update September 2023
The Supreme Court rules that Tesco may not use fire and rehire to withdraw a collectively agreed contractual benefit that it had previously described as “permanent”.
The benefit in question was a pay uplift (retained pay) given to warehouse workers who relocated to a new distribution centre as part of a restructuring. The organisation later stated that it wanted to align pay with similar staff, and therefore offered a lump sum to give up the retained pay. Those who refused faced being dismissed and re-engaged on the new terms. Following legal action by USDAW, a High Court injunction prevented these changes – the Court of Appeal then overturned this, leading to the final appeal to the Supreme Court.
When does TUPE apply?
TUPE typically applies in one of two scenarios:
• A business sale: when a business, or part of one, is sold as a ‘going concern’; ie, it will continue to operate and employees will be transferred as part of that sale.
- A service provision change: when there is a change in service provider; eg, through outsourcing or insourcing – when a previously outsourced service is brought back in-house – or a change in contractor.
What do you need to know?
Whether you are buying or selling a business or winning or losing a service, as an employer it is crucial to understand your responsibilities under TUPE. It is also important to maintain open communication with the affected staff to ensure that they are informed and consulted if necessary, on the proposed transfer. In addition, employers should be aware of the following rights in connection with the application of TUPE: Terms of employment
– One of the main aims of TUPE is to ensure that all existing terms and conditions of employment remain intact when they transfer either immediately before or after the transfer. After the transfer, the incoming employer cannot make changes to their terms of employment simply owing to the transfer, but this may be permissible if the changes are for legitimate business interests.
– Protection from unfair dismissal
– An employee is protected from being dismissed simply owing to the transfer unless there is an economic, technical or organisational (ETO) reason justifying this; for example, if there is a genuine redundancy situation. However, where the redundancy is not for an ETO reason, employees affected by a redundancy in connection with a TUPE transfer may have the right to redundancy pay and notice pay, and to pursue their rights at a tribunal for a claim for unfair dismissal, subject to eligibility.
Transfer of liability
– All liabilities transfer to the incoming employer, including any ongoing or potential employment-related disputes.
Fight for Equal Pay
In a landmark decision last month, more than 3,500 current and former Next employees won a six-year equal pay action against the store, which experts say could “shine a light” on gender segregation in the private sector and have serious ramifications for future cases.
An employment tribunal ruled that store staff, who are predominantly women, should not have been paid less than their male counterparts working in the company’s warehouses.
This ruling marks a significant victory in the fight for equal pay, with the potential back-pay owed to these workers exceeding £30 million. The case highlights the ongoing issue of gender pay disparity, particularly in sectors where certain roles are predominantly occupied by women.
Next argued at the hearing in May of this year that market forces explained the pay difference and warehouse roles generally command higher wages in the broader job market compared to retail roles. However, the tribunal rejected this justification, setting a precedent that could impact similar disputes across other sectors.
What this means for your business
Equal pay claims are likely to continue to make the headlines in the retail sector for the foreseeable future. There are similar long-running equal pay cases pending against other large retailers such as Tesco, Sainsbury’s, Asda and Morrisons.
While retail is currently the key battleground, the success of the Next claimants may encourage employees in other sectors to consider equal pay claims. Education, finance & insurance, and construction have some of the worst imbalances, according to gender pay gap reporting figures, so it is vital businesses get their pay equity in order.
Is your data good enough?
Market data is mentioned in the Equality Act 2010 as a non-discriminatory rationale to differ between jobs of a similar weight within organisations, so long as the data is free of discrimination. The law firm representing the workers argued that the market data used in the data survey was in itself discriminatory – thereby perpetuating gender pay differentials.
This clearly underlines the need to ensure that any market data you rely on to differentiate between roles in your organisation MUST be free of any discriminatory aspects (such as a high percentage of female post holders) to ensure you remain compliant with the Act.
International Equal Pay Day,yearly event
International Equal Pay Day, celebrated on 18 September, represents the longstanding efforts towards the achievement of equal pay for work of equal value. Further building on the United Nations’ commitment to human rights and against all forms of discrimination, it serves as a powerful reminder of the ongoing struggle to achieve equality in the workplace. Despite significant progress in various aspects of equality, the gender pay gap remains a persistent issue.
Gender Pay Gap Reporting: A Step in the Right Direction 2017
In 2017, the UK government introduced mandatory gender pay gap reporting for all organisations with 250 or more employees. This initiative was a significant step forward in promoting transparency and accountability, allowing public scrutiny of companies’ pay practices and encouraging employers to take action to address disparities.
Research indicates that companies subject to reporting requirements have made more progress in closing the gender pay gap than those that are not. Many organisations have responded by conducting internal audits, reviewing pay structures, and implementing initiatives to support the advancement of women within their workforce.
However, while gender pay gap reporting has been instrumental in reducing wage disparities, it has not been enough to eliminate the gap altogether. The fact that four out of five companies and organisations in the UK still pay men more than women highlights the need for further action.
Final guidance: duty to prevent sexual harassment at work
A team of employment lawyers from CMS analyses the EHRC’s new guidelines for businesses on complying with forthcoming legislation on sexual harassment
The Equality and Human Rights Commission (EHRC) has published the final version of its updated technical guidance to support employers in complying with the new duty to prevent sexual harassment, which comes into force on 26 October 2024.
Overall, the final guidance is helpful in providing a clearer picture of the standards expected of employers to demonstrate compliance with the new duty. A notable addition is the emphasis on the requirement to carry out sexual harassment risk assessments, which will be new to many organisations. The key message is that a tick-box exercise will not be enough. It will be essential to anticipate issues and take proactive, preventative action. High standards, time and resources will be required to meet the duty.
What is ‘reasonable’?
The final guidance makes clear that what is ‘reasonable’ will vary from employer to employer, and that every employer’s situation will be different. The guidance outlines the (non-exhaustive) factors that will be relevant in determining what is reasonable.
Previously, the draft guidance mentioned an employer’s size, sector, working environment and resources. The final guidance refers to many more factors to be considered when determining reasonableness, such as the impact of regulatory standards, the potential disruption of taking a particular step weighed against the benefit it could achieve and whether steps taken previously appear to have been effective. This emphasises the fact that all employers are expected to take action in relation to the preventative duty.
Will ending zero-hours contracts really be mutually beneficial?
Often referred to as casual contracts, zero-hour contracts provide workers with no guaranteed hours but require them to work when called upon.
Under the proposed reforms, the government plans to end “exploitative” zero-hour contracts. Workers on such contracts who regularly work a set number of hours over a likely 12-week reference period will have the right to a guaranteed hours offer.
This change is intended to provide workers in precarious positions more predictable and stable employment options. However, workers still can still choose to stay on their original contracts if they prefer. The reforms will also apply to low-hour contracts, aiming to address what the government has described as “one-sided flexibility” and ensuring workers have greater job security.
The legislation will repeal the Workers (Predictable Terms and Conditions) Act 2023, which had been expected to come into effect this year. The Act would have allowed workers to request predictable work patterns if they lacked consistency and had 26 weeks of continuous service.
Seb Maley, chief executive of Qdos, told People Management: “The new government sees zero-hour contracts as one-sided flexibility that only suits businesses and creates an army of vulnerable workers.
“In many cases and in particular industries, it’s difficult to disagree – a better balance needs to be struck.”
The government’s new employment law reforms: explained
The employment rights bill has no major surprises as the majority of the changes were trailed in the Labour Party manifesto. Employers can take comfort in the fact that only a handful of smaller changes are expected in the short term.
The much-publicised ‘day one’ right to claim unfair dismissal will be subject to a probationary period. This change will not be introduced until autumn 2026.
Aimed at resetting industrial relations, the Bill also contains significant changes to the way in which trade unions interact with employers and has been well received by the TUC.
Statutory rights
Unfair dismissal – the two-year qualifying period for unfair dismissal will be removed so that employees can claim ordinary unfair dismissal from day one of employment. Employers will be able to use probationary periods; the government has indicated that their preference is for a nine-month probationary period during which organisations could follow a truncated dismissal procedure. How that will operate in practice will be crucial; the bill does not contain that detail and it will be subject to consultation.
Statutory sick pay – available from day one of employment, and the lower earnings limit eligibility requirement will be removed.
Parental leave and paternity leave – available from day one of employment. More people will become eligible for statutory bereavement leave.
Contracts
Fire and rehire – the bill introduces a new category of automatic unfair dismissal where the reason for dismissal is that the employer sought to vary the employee’s contract of employment, and the employee did not agree to the variation. There will be no qualifying period for this right. Employers will, however, be able to avoid a finding of unfair dismissal if they can show that the reason for the variation related to financial difficulties affecting its business and it could not reasonably have avoided making the variation.