The Tipping Act: how does it work and what new changes are coming

The festive season is always a busy one for the hospitality industry, where businesses hope that an uptick in demand will help see them through leaner times. Staff who receive tips also hope customers’ festive spirit will extend to their tipping practices.

The Employment (Allocation of Tips) Act 2023 (the “Tipping Act”) came into force in October 2024, but how does the Tipping Act work in practice and what further changes lie ahead?

What is the Tipping Act?

The Tipping Act was introduced to curtail the practice of businesses not handing over all or some tips earnt by their staff. The Tipping Act makes it mandatory for all tips, service charges and gratuities that businesses have 'control or significant influence' over to be passed on to workers - without deductions.

The purpose of the Tipping Act is to ensure fair treatment of workers by guaranteeing that qualifying tips, service charges, and other gratuities go directly to staff as intended by customers, while also standardising tip distribution practices. Notably, the Tipping Act also sets out specific rights and obligations in relation to agency workers.

What are “qualifying tips”?

The Tipping Act only applies to "qualifying tips” which are those tips received by the business directly from customers, such as:

• Paid by credit or debit card;
• Deposited into the business’ bank account; or
• Made via electronic means like a mobile app.

However, the method of payment, whether by card or another means, is not decisive in determining whether a tip is “qualifying.”, what is key is the degree of control the business has over the tips.

Tips given directly to workers in cash by customers are generally not considered “qualifying tips”, unless the business exercises substantial control or influence over how those cash tips are allocated. For example, a business is considered to have exercised control or significant influence over cash tips if they tell their workers how to share them, gather the tips themselves to distribute at the end of a shift, or include in regular payroll payments.

Business responsibilities for “qualifying tips”

In respect of “qualifying tips”, businesses have specific responsibilities:

• Ensure all tips are passed on to workers in full, with no deductions except for tax and National Insurance Contributions. (Tips do not count towards the National Minimum Wage and this position remains unchanged since 2009).
• Maintain a written policy on tipping and keep detailed records where tipping is a regular practice.
• Follow the applicable statutory Code of Practice (the “Code”) when handling tip distribution. Although the Code is not legally enforceable, and there are no financial penalties for non-compliance, employment tribunals may consider it in the event of a dispute.
• Distribute tips among staff fairly and transparently. Businesses have the option to manage their tipping policy directly or to delegate its administration to an independent tronc. A tronc is a special pay arrangement used to distribute tips, gratuities and service charges and may be an elected member of staff or an external party, such as a payroll provider. Regardless of who manages the tronc, the business remains legally responsible for ensuring it is operated lawfully and adheres to the principles of fairness and transparency outlined in the Code.
• Ensure tips are allocated to workers no later than one month after the month in which they were received by the business.
• Businesses are required to maintain records detailing the total amount of tips received at the workplace and the amounts distributed to workers. These records must be retained for a minimum of three years.

Any contractual provision which excludes the application of the Tipping Act will be void. If a business does not comply with the provisions of the Tipping Act, workers have the right to make a complaint with the Employment Tribunal who can make a declaration of non-compliance and award compensation of up to £5,000 to each affected worker. The Employment Tribunal may also make an order requiring the business to comply with the Tipping Act in the future.

Changes to tips regime in 2026

The new Employment Rights Act 2025 will further strengthen the current tips regime by requiring businesses to consult with their workforce (or their trade union or workforce representatives) about their tips policy, with a review subject to further consultation needing to take place every three years. These provisions are likely to come into force in October 2026.

The challenge for businesses

While the Tipping Act may be welcome legislation for those workers who are often amongst the lowest paid working in service industries, how are businesses responding? Hospitality businesses are under increasing pressure to survive amidst rising costs and reduced consumer spend. Will the industry see a trend of increased service charges by businesses in an attempt to cover costs, and workers not awarded pay rises which they might have otherwise received, and remain at or close to the National Minimum or Living wage?

How Hamlins can help

Our Employment team advises both employers and employees on all aspects of employment law, providing support and guidance on the full range of employment issues which arise during the employment life cycle, from recruitment through to redundancies, performance dismissals and executive exits.

If you would like a conversation on how to ensure compliance with the Tipping Act, please get in touch with Penny Hunt, Head of our Employment team.