A restaurant adds a discretionary service charge to every bill. Card payments go through the business account and managers divide one monthly figure using a spreadsheet the team has not seen. Kitchen staff believe they receive less, while an agency worker is never included. That is not simply a morale problem. Where an employer controls or significantly influences tips, the law requires fair allocation, timely payment, a written policy and usable records.
Identify which tips the employer controls
The Employment (Allocation of Tips) Act 2023 has applied in England, Scotland and Wales since 1 October 2024. It covers qualifying tips, gratuities and service charges over which the employer has control or significant influence. Typical examples include a service charge added to a bill, a card tip paid into the business account, and cash tips collected by the employer and divided between workers.
The rules can also apply where a tip reaches a worker first but the employer collects it for later distribution. By contrast, a cash tip that a customer gives directly to a worker, which the worker keeps without employer involvement, will normally fall outside this statutory allocation process. Explain that distinction rather than treating every payment marked 'tip' in the same way.
Map each route from customer to worker: cash, shared jars, card terminals, online ordering, delivery apps and service charges. Record who receives the money, decides the split and sends it to payroll or a tronc.
Acas: what the law says about tips and service charges ↗ · Employment (Allocation of Tips) Act 2023 ↗
Pass on the full amount by the legal deadline
Employers must pass qualifying tips to workers without deductions other than the usual tax and National Insurance deductions. Card-processing charges, breakages, till shortages, administration costs and uniform charges should not be removed from the tips pot simply because they are business costs.
Payment must be made no later than the end of the month following the month in which the customer paid the tip. If a venue receives qualifying tips during July, the employer must allocate and pay them by the end of August. Build the calculation, approval and payroll dates backwards from that deadline.
Tips cannot be used to make basic pay reach the National Minimum Wage. Keep the wage calculation separate and make payslips or accompanying information clear enough for workers to understand what is ordinary pay and what is a tips payment.
Employment Rights Act 1996, section 27G ↗ · Acas: tips and the minimum wage ↗
Fair does not automatically mean equal
The statutory Code requires employers to allocate qualifying tips fairly and transparently. It does not impose one formula for every business. Relevant factors might include hours worked when tips were generated, type of role, level of responsibility, customer intention, performance, length of service or the area in which the work took place. The factors must be objective, reasonable and explained.
A restaurant may decide to include front-of-house, kitchen and bar staff because all contributed to the service. A hotel may use different pools for separate outlets where the customer experience and tips are genuinely distinct. What is difficult to defend is an unexplained manager override, a formula that changes after a busy event or a method designed to favour a preferred group.
Agency workers must be considered. They do not automatically need an identical share in every circumstance, but excluding them solely because they came through an agency is likely to be unfair. Give them the policy, explain the factors and agree whether payment will be made directly or through the agency.
GOV.UK: statutory Code on fair and transparent distribution of tips ↗ · Acas: sharing tips fairly ↗ · Related guide: using agency workers →
Write the policy and keep evidence
Where qualifying tips arise more than occasionally or exceptionally, the employer must have a written policy. It must state whether the business requires or encourages customers to pay tips or service charges and explain how those payments are handled and allocated fairly. Make it available to all affected workers, including agency workers.
Keep records for three years from the date the tips were paid. Record the qualifying tips received, the amounts allocated to workers and the amount sent for independent tronc allocation. Reconcile the till total, calculation, payroll or tronc instruction and payment.
A worker can make one written records request in a three-month period for an eligible month or consecutive months going back up to three years. The employer normally has four weeks to respond. The information includes the total qualifying tips for the relevant workplace and the amount allocated to that worker, not each colleague's individual payment. Handle the records in line with data-protection requirements.
Acas: tipping policies and records ↗ · Employment Rights Act 1996, sections 27I and 27J ↗
Make the allocation method explainable.
HR + SAFETY can help hospitality and service employers review allocation factors, agency-worker treatment and the records linking tips to payroll.
Discuss a tipping-policy reviewA tronc does not remove employer oversight
A tronc is a system for pooling and distributing tips, run by a troncmaster who may be a worker, accountant or independent business. It can support independence and consistent administration, but the employer must still ensure that the arrangement was set up fairly and operates in line with the statutory Code.
Define the troncmaster's authority, the information they receive, the allocation factors, payment route, record ownership and escalation process. The employer should not manipulate an independent tronc to reach a preferred result. Equally, it cannot ignore credible concerns about unfair allocation or deductions.
If the employer suspects that the tronc is not paying correctly, it should investigate and act. That may involve correcting data, requiring a changed process, replacing the troncmaster or ending the arrangement. Payroll, finance, HR and the troncmaster should be able to reconcile the same monthly total.
Prepare now for the 1 January 2027 change
The current duties above are already in force. A separate change takes effect on 1 January 2027. Acas confirms that employers will then need to consult before creating or reviewing a tipping policy. Consultation must be with a recognised trade union or worker representatives where they exist, or directly with affected workers where they do not.
Employers will also need to share an anonymised summary of consultation feedback with affected workers and update the tipping policy at least once every three years. These are future requirements on 3 November 2026; do not describe them as if they already apply.
Use the remaining time to test the current method, identify the affected workers, decide how agency workers will participate and plan a genuine consultation. Asking people to approve a finished policy is not meaningful consultation. Give them the proposed factors, explain the business reasoning and consider alternative suggestions before the decision is final.
Acas: upcoming changes to tipping law ↗ · Related guide: consulting employees on workplace decisions →
Tips and service charges checklist
Law and official guidance were checked on 3 November 2026. The practical test is whether the business can follow one month's tips from the customer payment to the worker, explain the allocation factors and produce the policy and records without reconstructing them after a complaint.
- Map every cash, card, app and service-charge route from customer to worker.
- Identify which payments the employer controls or significantly influences.
- Stop deductions other than the usual tax and National Insurance deductions.
- Pay qualifying tips by the end of the following month.
- Keep National Minimum Wage calculations separate from tips.
- Choose objective allocation factors and explain why they are fair.
- Include agency workers in the assessment rather than excluding them by default.
- Publish a written policy where qualifying tips are more than occasional or exceptional.
- Reconcile till, card, allocation, tronc and payroll figures each month.
- Retain the statutory records for three years and respond to valid requests within four weeks.
- Define who investigates a discrepancy or complaint.
- Plan consultation, feedback reporting and policy review for 1 January 2027.
A defensible tips system connects the customer payment, a fair allocation method, the correct deadline, transparent worker information and reconciled records. Fix those current controls first, then use the 2027 consultation to test and improve the policy.
This guide provides general information for UK employers. It is not legal advice and should not replace advice based on the facts of a specific matter.