Understanding the new tipping laws in the UK’s hospitality sector


The hospitality industry has just witnessed the introduction of the Employment (Allocation of Tips) Act 2023 which is going to affect almost every facet of the sector.

This landmark legislation, which received Royal Assent on 2 May 2023, and is set to take effect from 1 July 2024, aims to ensure fair and transparent distribution of tips across the around two million workers within the industry.

What does the Act actually say?

At the core of this legislation is the clear differentiation between voluntary customer tips and service charges that businesses often add to bills by default.

Employers must now distribute all tips, without unfair deductions, directly to their employees (obviously, taking into account only the necessary tax withholdings).

Government initiatives and the Code of Practice

In anticipation of these changes, the Government has unveiled a draft Code of Practice.

Although it is still undergoing consultation, the Code is designed to flesh out the Act’s requirements, offering guidelines to businesses for fair tip allocation and ensuring employees understand their rights through further information and education.

It covers several critical areas:

What are the implications for your hospitality business?

Businesses that withhold tips from their employees are the subject of much public chagrin and dissatisfaction when they are found out and the Act will now add a legal aspect to this.

It also reflects a broader move towards a cashless society and the decrease in cash use since the pandemic.

It also introduces specific obligations for employers:

Employees, in turn, are empowered to request their tip distribution records, enhancing their ability to seek recourse through employment tribunals if needed.

Strategic adjustments and compliance

You will need to set up compliant tronc schemes, consider the immediate impact on your cash flow, and develop policies that detail the fair distribution of tips amongst your workers.

Moreover, you will need to keep detailed records for three years and ensure the inclusion of agency workers in the distribution process.

Failure to comply could lead to Employment Tribunal claims and financial penalties so it is important to speak to an expert in employment law as soon as possible.

We can help you understand your responsibilities, obligations and rights under this new legislation and ensure you remain compliant.

Please get in touch for more information on the Employment (Allocation of Tips) Act or any other aspects of payroll legislation.