UK Tipping Laws Have Changed: Is Your Hospitality Business Compliant?

If you run a hospitality business in England, Scotland or Wales, you may already know that the rules around tips, gratuities and service charges changed in 2024. These changes were introduced through the Employment (Allocation of Tips) Act 2023, which came into force on 1 October 2024 and created a clearer legal framework for how qualifying tips must be allocated and distributed.

Although many business owners have a general understanding that tips should go to staff, they may not fully understand how the current rules apply in practice. This is particularly important where a business collects tips by card, adds a discretionary service charge, operates a tronc system or otherwise controls how tips are shared between workers.

For hospitality businesses, compliance with the tipping rules is more than a payroll issue. Failing to handle tips correctly can lead to staff disputes, employment tribunal claims and reputational damage. In this article, we’ll explain what the tipping laws require, which businesses are affected and what practical steps employers can take to stay compliant.

What Are The UK Tipping Laws?

The main legislation governing tips is the Employment (Allocation of Tips) Act 2023, often referred to as the Tipping Act. The Act amended the Employment Rights Act 1996 by inserting new provisions dealing specifically with how qualifying tips, gratuities and service charges must be handled. The statutory Code of Practice on Fair and Transparent Distribution of Tips was also brought into effect on 1 October 2024 and employers must have regard to it when designing and implementing tipping policies and practices.

The purpose of the legislation is to ensure that tips paid by customers are passed on to workers rather than being retained by employers. In broad terms, where an employer receives tips or has control or significant influence over how tips are distributed, those tips must be allocated fairly and transparently.

The Code applies in England, Scotland and Wales. If your business operates in Northern Ireland, you should seek advice on the rules that apply there, as the same statutory framework does not apply in the same way.

Why Were The Rules Changed?

The tipping laws were introduced to address concerns that some employers were retaining part or all of the tips, gratuities or service charges paid by customers. This was a particular issue in industries such as hospitality, where customers often assume that a tip or service charge will go to the workers who provided the service.

Before the current regime came into force, there was less specific statutory protection around how employer-controlled tips had to be distributed. The 2024 changes were designed to improve fairness and transparency by giving workers clearer rights and by requiring businesses to document how tips are handled.

For small hospitality businesses, this means it is no longer enough to have an informal or undocumented approach to tips. If your business receives or controls qualifying tips, you need to be able to show that they are being distributed lawfully and fairly.

Which Businesses Are Affected?

The rules are particularly relevant to hospitality businesses, including restaurants, cafés, pubs, bars, hotels, catering businesses, food trucks, event venues and private dining businesses. However, the rules are not limited to hospitality. They can also apply to other service-based businesses where tipping is common, such as salons, spas, barbers, tour operators, leisure venues, taxi businesses and delivery businesses. Acas describes the Tipping Act as applying to tips, service charges and gratuities that employers have “control or significant influence” over.

The key question is not just what industry your business operates in. The more important question is whether your business receives, controls or influences the distribution of tips. For example, if customers pay tips through your card terminal, if your business adds a discretionary service charge to bills, or if tips are pooled and distributed through a system managed by the business, the tipping rules are likely to be relevant.

What Counts As A Qualifying Tip, Gratuity Or Service Charge?

The legislation applies to qualifying tips, gratuities and service charges. These can arise in different ways, including card tips, discretionary service charges, app-based tips, platform payments and pooled tips managed through a tronc system.

The method of payment is not the only issue. A cash tip, card tip or app-based tip may be covered depending on who receives it and who controls how it is distributed. The rules are most clearly engaged where the employer receives the tip or has control or significant influence over how it is allocated.

For example, if a restaurant receives tips through its payment terminal and later decides how those tips are divided between workers, the employer is likely to have control over those tips. Similarly, if a business collects cash tips into a shared pool and then applies its own allocation method, those tips may fall within the regime.

Cash tips given directly by a customer to a worker can be different. If the employer has no role in collecting, pooling, allocating or influencing those tips, they may not be covered in the same way. However, businesses should be careful not to assume that cash tips are automatically outside the rules. What matters is the level of employer involvement.

In some cases, non-cash items may also be relevant. Acas notes that tips can include items such as vouchers, stamps or tokens if they have a fixed monetary value and can be exchanged for money, goods or services.

Which Workers Are Covered?

The tipping rules apply to workers, not just employees. This distinction is important because many hospitality businesses rely on a mix of full-time staff, part-time staff, casual workers, zero-hours workers and agency workers.

Eligible agency workers may also be entitled to a fair allocation of qualifying tips. The statutory Code states that the rules apply to all workers and eligible agency workers, but not to genuinely self-employed people.

This means businesses should be careful when deciding who is included in a tip-sharing arrangement. Excluding certain groups of workers without a fair and objective reason could create compliance issues.

What Does Your Business Need To Do?

If your business receives qualifying tips, gratuities or service charges, you must ensure they are passed on to workers without deductions, except for lawful deductions such as tax and National Insurance. Acas confirms that employers must pass on tips without deductions other than usual tax and National Insurance deductions, share tips fairly and transparently, and have a written policy and records.

In practical terms, tips should not be treated as general business revenue. Employers should not use tips to cover business costs, card processing fees, breakages, till shortages, administrative costs or other expenses. The core principle is that tips paid by customers should reach workers.

Employers must also pay tips promptly. In general, tips must be paid to workers no later than the end of the month after the month in which the tips were received. This means businesses need a reliable process for calculating, allocating and paying tips within the required timeframe.

It is also important to keep tips separate from minimum wage obligations. Employers cannot use tips to make up a worker’s pay to the National Minimum Wage or National Living Wage. Tips should be treated as additional amounts, not as a substitute for minimum wage compliance.

What Does “Fair” Tip Allocation Mean?

Fair allocation does not necessarily mean equal allocation. A business may be able to allocate tips differently depending on the circumstances, provided the method is fair, transparent and justifiable.

For example, a restaurant may decide to share tips between front-of-house staff and kitchen staff. A hotel may have different tip-sharing arrangements for restaurant staff, bar staff, housekeeping staff and concierge staff. A business may also consider factors such as hours worked, role, level of responsibility, seniority, customer intention, shift patterns or place of work.

However, the allocation method should be objective and capable of being explained. Businesses should be cautious about arrangements that unfairly exclude junior staff, casual workers, agency workers or back-of-house workers without a clear reason. They should also avoid arrangements that give managers or senior staff a disproportionate share unless there is a fair and documented basis for doing so.

The statutory Code is important here because employers must have regard to it when designing their tipping practices, and employment tribunals may consider it when assessing whether a business has complied with the law.

Do You Need A Written Tipping Policy?

If your business receives qualifying tips, you should have a written tipping policy. This is not just a matter of best practice. The legislation requires employers to have a written policy where qualifying tips are paid at, or are otherwise attributable to, a place of business. The policy should be made available to workers.

A good tipping policy should explain how tips are collected, which types of tips are covered, who is eligible to receive tips, how tips are allocated, when tips are paid and who is responsible for managing the process. It should also explain how workers can raise questions or concerns about tip allocation.

Having a written policy helps reduce misunderstandings and gives workers confidence that tips are being handled fairly. It also helps the business demonstrate compliance if a worker raises a complaint or requests information about tipping arrangements.

What Records Should You Keep?

Employers must keep records showing how qualifying tips have been dealt with. The statutory Code states that employers should maintain a record of all tips paid at their place of business and their allocation and distribution between each worker. Workers have the right to request access to those records.

In practice, your records should show how much was received in qualifying tips, how those tips were received, how they were allocated, which workers received payments, when payments were made and what method was used to calculate each worker’s share.

Good record-keeping is important because it provides evidence that the business has acted fairly. It can also help identify issues before they become disputes. For example, if some workers receive significantly less than others, the business should be able to explain the basis for that difference.

Can You Still Use A Tronc System?

Yes, businesses can still use a tronc system. A tronc is an arrangement where tips are pooled and distributed among workers, often by a troncmaster. Many hospitality businesses use troncs to manage tips across different teams or shifts.

However, a tronc system must still operate consistently with the tipping rules. The Act expressly deals with independent troncs, and the key point is that tips must still be allocated fairly and transparently.

Using a tronc does not mean a business can ignore its obligations. If your business uses a tronc, you should review whether the arrangement is clearly documented, whether workers understand how it works, whether the allocation method is fair and whether any deductions are being made. Employers should also take steps to address issues if they become aware that a tronc is not distributing tips properly.

What Happens If Your Business Gets It Wrong?

If a business fails to comply with the tipping rules, workers may be able to bring a claim in the employment tribunal. The government has stated that where an employer breaks the law and retains tips, a worker can bring a tribunal claim.

A tribunal may also take the statutory Code into account when considering whether tips were allocated fairly. This makes the Code an important practical document, not just background guidance.

Non-compliance can also create commercial risks. Staff may lose trust in the business, disputes may become public, and customers may react negatively if they believe tips are not reaching workers. For small hospitality businesses, these issues can be costly and disruptive, particularly where reputation and staff retention are important.

How Can Hospitality Businesses Stay Compliant?

The first step is to review how your business currently receives tips, gratuities and service charges. You should consider whether tips are paid in cash, by card, through an online platform, through a discretionary service charge or through a tronc arrangement.

Once you understand how tips enter the business, you should identify whether the business receives them or has control or significant influence over their allocation. If it does, you should ensure the tips are passed on to workers in full, subject only to lawful deductions such as tax and National Insurance.

You should also review your written tipping policy, employment contracts, staff handbook, payroll processes and any tronc documentation. These documents should be consistent with each other and with what actually happens in practice. If the written policy says one thing but managers follow a different process, the business may still face compliance issues.

Finally, managers and payroll staff should understand the rules. This is especially important in businesses with multiple sites, variable shifts, casual workers or agency workers. A fair tipping policy is only effective if it is applied consistently.

Key Takeaways

The tipping rules introduced in 2024 remain highly relevant for hospitality businesses and other service-based businesses in 2026. If your business receives or controls tips, gratuities or service charges, you need to make sure they are allocated to workers fairly and transparently.

The most important points are that qualifying tips should be passed on to workers without unlawful deductions, paid within the required timeframe, supported by a written policy and backed up by proper records. Businesses should also make sure they are considering all relevant workers, including casual workers and eligible agency workers.

Need Help With Your Tipping Policy?

If your business accepts tips, gratuities or service charges, it’s important to make sure your processes comply with the legal requirements introduced in 2024.

If you would like help reviewing your tipping arrangements, preparing a tipping policy and understanding your obligations as an employer, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.