New tipping laws and what they mean for taxi and private hire operators

From 1 October 2024, new rules around tipping have come into effect in the UK, aiming to ensure fairness and transparency in the distribution of gratuities to workers. The Employment (Allocation of Tips) Act 2023 introduces a statutory Code of Practice that affects all industries where tips are part of the compensation landscape, and the taxi industry is no exception.

Under this new legislation, employers must pass all customer tips to workers without any deductions, except in limited situations such as tax. Taxi operators who accept digital tips or service charges on behalf of drivers will likely need to revise their practices. This applies not only to traditional street hail taxis but also to private hire vehicles where service charges are often collected via card payments.

Implications for Taxi Operators

According to policy papers, operators who control or influence the collection and distribution of tips must implement a fair and transparent policy. This will require formalising a written tipping policy that sets out how tips are accepted, allocated, and distributed. The policy must be accessible to all drivers, whether directly employed, working through an agency, or engaged on zero-hours contracts.

Taxi operators who use app-based payments will need to comply if the business first receives the tip, as such tips fall under employer control. This means the company must ensure that tips are distributed fairly among eligible drivers. Key factors in deciding fair allocation can include the hours worked or, more likely, individual contributions to the service.

Operators are also required to maintain detailed records of all tips received and distributed. Drivers will have the right to request access to these records to verify their fair share. Such transparency aims to build trust and ensure drivers see the benefit of their good service reflected accurately in their earnings.

Challenges and Changes

The new rules demand a level of administrative change for operators, especially in smaller companies where tipping has traditionally been managed informally. However, non-compliance could result in disputes being brought to employment tribunals, with potential penalties for failing to follow fair practices.

Taxi operators will need to adapt quickly to these regulations, with October 2024 being the cut-off for compliance.