In recent years, the way employers manage tips has come under greater scrutiny, with legislation designed to ensure workers receive the tips intended for them and that employers operate transparent, fair allocation processes.
Many employers in the hospitality, leisure and service sectors will already be familiar with the Employment (Allocation of Tips) Act 2023, which came into force in October 2024. However, the Employment Rights Act 2025 introduces further expectations around how employers document, communicate and review tipping arrangements.
For businesses that receive customer tips, gratuities or service charges, these changes are an opportunity to review existing policies and ensure they remain compliant. Failing to do so could expose employers to employment tribunal claims, reputational damage and unnecessary disputes with staff.
What Are The Current Rules on Tip Allocation?
Under current legislation, employers must ensure that qualifying tips, gratuities and service charges are allocated fairly between workers. Key requirements for this include:
- Employers cannot make deductions from qualifying tips, except where required by law (such as tax).
- Tips must be distributed fairly, whether they are allocated directly by the employer or through an independent tronc arrangement.
- Tips must usually be paid to workers no later than the end of the month following the month in which they were received.
- Employers must have a written tipping policy if they regularly receive and allocate qualifying tips.
- Workers must have the right to request information about how tips have been allocated.
- Employers must keep records of tip allocation for at least three years.
The legislation is supported by a statutory Code of Practice, which provides guidance on what “fair allocation” means. While businesses have flexibility in deciding how tips are shared, any allocation method should be objective, transparent and consistently applied.
Why Are The Changes Being Introduced?
The Employment Rights Act 2025 builds on the existing framework that was in place, but places a greater emphasis on transparency, accountability and good governance. While many employers already have tipping policies in place, the new obligations reinforce the importance of regularly reviewing these policies to ensure they remain up to date and reflective of how tips are actually distributed in practice.
The intention for this change is to improve transparency for workers and encourage employers continue to assess whether their allocation methods are fair. This should reduce disputes over how tips are shared and strengthen confidence that customer tips are reaching staff as they should.
Over time, businesses, staffing structures and job roles and service models change, so a tipping policy that worked well two years ago may not suit current arrangements. By regularly reviewing tipping, it ensures these policies remain effective and compliant.
What Employers Should Do Now
Although most businesses already have a compliant tipping policy, now is a good time to review existing procedures. Employers should ensure that their written tipping policy accurately reflects how tips are currently collected, allocated and paid. If this is changed, your documentation needs to be updated accordingly.
Also, make sure allocation methods are fair and applied consistently across the workforce. It’s important that detailed records are kept showing how tips have been allocated and ensure this can be produced if requested by workers.
Staff should understand how the tipping system operates and be allowed regular communication to avoid any misunderstandings. Managers who are responsible for payroll or allocating tips should understand the legal requirements and follow the company’s policy.
A good way to remain compliant is to schedule in regular policy reviews into your HR processes, particularly following changes to staffing structures, service models or remuneration arrangements.
Common Mistakes to Avoid
Even the most well-intentioned employers can fall short with tip allocation if their policies are not kept under review. Some common mistakes include:
- Relying on outdated tipping policies that no longer reflect current practice
- Failing to communicate clearly with staff about how tips are allocated
- Applying inconsistent allocation methods between different sites or managers
- Keeping inadequate records or tip distribution
- Assuming that independent tronc arrangement removes all employer responsibilities
With regular reviews and clear documentation, you can significantly reduce the risk of disputes or tribunal claims.
How Premier Legal Can Help
At Premier Legal, we advise employers across a range of industries on all aspects of employment law compliance. Whether you need assistance reviewing your tipping policy, updating employment documentation or managing a workplace dispute, our experienced employment law team can provide practical, commercially focused advice.
If you would like to review your current tipping arrangements or discuss your wider employment law obligations, contact Premier Legal.
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Author
sarahrobinson@premier-legal.co.uk
Sarah Robinson is the Managing Partner and has specialised exclusively in employment law since qualifying as a solicitor in 1996.
Sarah has considerable experience of representing clients in many different industry sectors including insurance and financial services, corporate finance, technology, legal services, automotive, hotel and catering and media as well as the public sector.
Areas of particular interest include restrictive covenants, TUPE and advising in relation to discrimination.