Requirement to deal with tips, gratuities and service charges Section 1: Tips, gratuities and service charges
This section inserts new Part 2B into the Employment Rights Act 1996, which sets out how employers must deal with qualifying tips, gratuities and service charges. "Employer" is defined in section 230(4) of that Act.
	The new section 27C goes on to deal with some key definitions. Subsection (2) defines "qualifying tips, gratuities and service charges" by reference to:
"employer-received tips". This is a tip, gratuity or service charge paid by a customer of an employer, which is either received upon its payment or subsequently by the employer or an associated person, or which is received upon its payment by a person under a payment arrangement made between the employer and that person (see subsection (3)(b)). A payment arrangement is defined by subsection (9) as an arrangement between an employer and another person under which payments made by customers of the employer are to be received by the other person instead of the employer. The category of employer-received tips will therefore typically include tips or service charges paid to an employer using a credit or debit card and, by virtue of subsection (9), will also include any sums paid by customers by way of tip, gratuity or service charge which are paid to an organisation such as a bank (for example by way of a fee for a card transaction) instead of being received by the employer.
"worker-received tips". This is a tip, gratuity or service charge paid by a customer of an employer and immediately received by a worker of the employer, without later being paid on to the employer or an associated person (see subsection (4)). Typically, this would include tips paid in cash or via a digital app directly to a worker and which the worker is not required to pay on to the employer. "Worker" is defined in section 230(3) of the Employment Rights Act 1996. However, worker-received tips are only treated as "qualifying tips, gratuities and service charges" where the employer or an associated person exercises control or significant influence over those tips or over other worker-received tips paid by customers during the same week or the following week – see section 27C(5) and (9). Control or significant influence might arise, for instance, where the employer directs that tips are shared amongst other workers. Where, for example, the employer simply allows workers to keep tips which they have individually received, it is unlikely that the employer would have exercised control or significant influence.
	A tip, gratuity or service charge may be a "qualifying tip, gratuity or service charge" even though it is described as something else (see subsections (3) and (4)). This may be relevant if, for example, an employer adds a service charge to a customer’s bill but describes it as a "supplemental charge for waiting on tables". For the purposes of the Act it also does not make a difference whether a service charge is mandatory or discretionary for the customer to pay. Deductions are to be disregarded (subsection (6)). However, an amount paid by a customer is not a tip, gratuity or service charge insofar as it represents a payment of value added tax (see subsection (7)).
	Subsection (8) provides that qualifying tips, gratuities and service charges can include amounts not paid in money, such as vouchers, as long as the item has a fixed monetary value and can be exchanged for money, goods and/or services. For example, this would include typical casino chips but would not include an item such as a bottle of wine.
	Part 2B also makes provision for the Secretary of State to issue a code of practice, see 27C(1)(b). New sections 27P to 27R, inserted by section 9, make provision for the issue of a code of practice by the Secretary of State. Such a code will not be binding on employers, but employers must take it into account in dealing with their obligations under the new Part 2B: see in particular sections 27D(3), 27F(4) and 27T(2).