When is the new tipping law coming in?
The new tipping legislation (The Employment (Allocation of Tips) Act 2023) had been originally due to go live from July, but was pushed back to allow businesses more time to prepare. It subsequently launched on 1 October 2024.
Also under the new regime, a statutory ‘Code of practice on fair and transparent distribution of tips’ also came into force, which gives employees the right to see their employers’ tipping policies and a record of how many tips are given.
Who is affected?
This new tipping law applies for all employers in England, Wales and Scotland who collect, allocate and pay tips, gratuities and service charges (referred to collectively as ‘tips’), such as restaurants, hotels, bars, pubs, cafes, taxi firms and hairdressers.
In the case of agency workers, the employer is required to distribute tips and pay them through the agency which they are engaged with.
It does not apply to those who are self-employed. Businesses that do not control or do not receive tips on behalf of their workforce are also out of the scope of the new legislation and the code of practice. Industries where tipping is a rarity are also exempt.
Why is the new tipping law being brought in?
The main aim of the new legislation is to ensure that all tips reach service staff, and that they are allocated in a fair way.
It covers tips and service charges which are “employer-received” (i.e. paid by card or otherwise to the employer and then paid to the staff member), as well as cash tips which are under the control of the employer to be allocated.
It is now illegal for businesses not to pass tips on to their staff, as well as other tipping rules which we have summarised below.
What has changed?
| Action | Old rules | New rules |
|---|---|---|
| Deductions | Employers can deduct any amount from the tip’s pot to cover admin fees, card transaction fees or other costs. | 100% of tips and service charge must be allocated to staff members. |
| Timing of tip payments | Some employers use the tips received in busy periods to supplement tips in quieter periods. | Tips must be paid in full to employees no later than the end of the next calendar month after they are received. |
| Fair allocation | There is a lack of guidance for operators on how to allocate tips. | Tips must be proven to be allocated amongst staff “fairly”, and a new Code of Practice has been published by the Government which provides practical guidance on how this can be managed. We have included a link to the Code of Practice below. |
| Regular wages | There is a lack of clarity on these rules. | It will no longer be legal to alter an employee’s regular wage (hourly rate or salary) in return for a share of tips. It will also be illegal for any guaranteed tips’ value to contribute to the National Minimum Wage laws. |
| Agency workers | Agencies act as the employer, in terms of paying the worker their share of the tips. | Agency workers will be eligible for the same proportion of tips as directly employed staff and are subject to the same rules on fair allocation and timely payments. Employers will have to pass on the agency worker’s share of tips to the recruitment agency who supplied them, who are then required to pay those amounts to their workers within a month of receipt. Agencies will also be responsible for deducting the income tax due, as well as National Insurance where the statutory disregard does not apply. |
| Multi-Venue operations and head offices | Employers could use tips from one venue to pay employees working in a different one. | Tips that are received at a specific venue must be allocated to the staff in that venue, not across multiple locations. However, head office staff may receive tips from certain venues if their job role can be linked to that specific venue, e.g. Area Managers or Sales Executives for a particular venue. |
| Documenting your tipping policy | No obligation for employers to publish a tip allocation policy. | Employers and independent Troncmasters will be obliged to publish a clear policy relating to tips and how they are allocated. The policy must explain how the employer complies with the need for “fair” allocation. Records of tips’ allocations must be retained for 3 years, and employees may request their personal tips statement as well as the tips statement for a venue, as long as there is no other personal data of other employees included. A copy of the scheme rules should be made available to all employees and agency workers working at each site. |
| Tronc schemes | n/a | Tronc arrangements and their tax implications need not change, as long as the arrangement of allocations and payments is compliant with the new rules (ie. paid in full, on time and allocated fairly). |
How can you prepare?
- Understand the new law and how it affects you: You can read the legislation in full here and you can read the ‘Code of practice on fair and transparent distribution of tips’ here. (external links to GOV.UK).
- Review and update your policies and procedures if necessary: Make it clear and transparent how your tips are collected, shared and reported.
- Communicate with your team: Also provide training where necessary.
- Check your tronc: If you use a tronc system make sure this meets the new rules and will be fit for purpose.
- Decide how you will keep records: Ensure you have a tips record keeping system in place, so that staff can request access to this information, as set out in the new law.
- Speak to your accountant or business advisor: If you are a Rouse client, contact our team about how we can assist you. If you are thinking about becoming a client, you can contact us to discuss how we can provide a full service of support for your business.
What will happen for those who break the new rules?
Those who don’t play by the rules may well find themselves in front of employment tribunals and facing prosecution, so it is important to ensure that you are ready.
Under the new rules, tribunals will be able to award workers up to £5,000 to compensate them for any financial losses suffered because of their employers’ failure to pay them correctly (or at all).
Hospitality accountants
We specialise in supporting hospitality and restaurant clients with a full range of accounting, tax, payroll and advisory services. We can also provide specialist advice for setting up and running Tronc schemes.
Find out more about our services here or contact us if you would like to discuss how we can assist your business.
Leighton is Managing Partner at Rouse Partners and supports a wide-ranging client portfolio. He also specialises in business advisory and corporate finance work.