From 1st October 2024, the Employment (Allocation of Tips) Act 2023 will come into force, introducing a long-overdue shift in how tips are handled in the UK. With over 2 million hospitality workers set to benefit, this is more than just a legal update; it’s a moment to recalibrate our industry culture around fairness, transparency, and respect.
The Tapestry of Change: What the New Law Means
At its core, the legislation ensures that all discretionary tips, service charges, and gratuities go directly to the workers who earned them. Employers must distribute these earnings fairly, without deductions, and with full transparency. This includes both tips given directly to the employer and those received by workers. Importantly, tips now encompass not just cash but also vouchers, tokens, and items of similar monetary value.
Operational Precision in Distribution
To comply, businesses must:
- Distribute all tips by the end of the month following the month of receipt.
- Avoid deductions of any kind, including admin fees.
- Develop a written tipping policy and communicate it to staff.
- Maintain detailed records of tip distribution for at least three years.
A clear policy must state whether tips are encouraged and how they’re shared, underlining the importance of aligning policy with practice.
Workers’ Entitlements and Agency Rights
All workers, including agency staff, are entitled to a fair share. They can request tip statements and raise disputes via employment tribunals within 12 months if they suspect unfair practices. Transparency isn’t optional it’s enforceable.
The Code of Practice: A Compass for Compliance
Published on 22nd April 2024 after public consultation, the final draft of the Code of Practice offers practical clarity. It confirms that tips paid directly to staff via apps are outside the employer’s scope. For agency workers, tips must be passed on promptly once allocated.
Tronc Schemes: A Model of Fairness
Many businesses already use a Tronc arrangement, overseen by an independent Tronc Master, to allocate tips. This structure not only reinforces fairness but also offers NIC exemptions for both employers and employees a welcome operational benefit. Employers may appoint or remove the Tronc Master but cannot themselves serve in the role, preserving neutrality.
From Service Charge to Shared Reward
Until October 2024, employers may continue discretionary service charges, which legally belong to them until passed on. These may be processed via payroll or through a Tronc, with deductions only for genuine costs such as card processing. After October, however, the emphasis shifts firmly towards worker benefit.
Financial Impact: A £200 Million Reallocation
This legislation is projected to channel an additional £200 million annually into the hands of workers. That’s not just a policy win – it’s a values statement for the sector. It reaffirms that front-line effort deserves front-of-house recognition.
Compliance Isn’t Optional
Employers who fail to follow the rules may face employment tribunal claims. Penalties can include compensation up to £5,000, with no opportunity to reclaim overpaid tips. Robust systems and a people-first mindset are critical for compliance.
Practical Next Steps for Employers
With the deadline approaching, forward-thinking businesses should:
- Review existing policies and contracts.
- Implement or revise Tronc arrangements.
- Train staff on their rights under the new law.
- Communicate clearly and regularly.
Engaging an independent Tronc operator can simplify implementation and boost staff confidence in the system.
A Broader Context of Reform
This change follows broader government moves to improve worker rights: a record minimum wage uplift, enhanced protections for parents and carers, and more accessible flexible working options. These reforms aim to create future-ready organisations with cultures of excellence at their heart.
Final Reflection
In hospitality, the tip isn’t just loose change it’s an expression of appreciation, trust, and value. This legislation ensures those sentiments land exactly where they should: in the hands of the workers. As leaders, we now have a golden opportunity to champion fairness and sharpen operational precision. Let’s rise to meet it.
Further Reading:
- UK Government Draft Code of Practice on Tips Distribution
- Department for Business & Trade: Legislation Overview
