Understanding the Employment Allocation of Tips Act 2023

As an employer in the UK, it’s essential to stay informed about legislation affecting your business and employees.

One employment law that will have significant implications for you—if your business is in an industry where tips are given—is the Employment Allocation of Tips Act 2023.

This law introduces new rules governing how tips, gratuities, and service charges are handled in the workplace.

To ensure you remain compliant and avoid any penalties, it’s important to understand how this act affects you and your business operations. If you need immediate help on this topic, it’s advisable to reach out to HR and Employment law experts, for up-to-date advice on this legislation. 

What Is the Employment Allocation of Tips Act 2023?

The Employment Allocation of Tips Act 2023 addresses concerns about unfair practices in the distribution of tips.

Under the law:

• It’s illegal to keep any tips or service charge for yourself or your business

• 100% of tips, gratuities, and service charges must go to employees

• You must keep a written record of who received the tip and in which venue

• Employees have the right to request more information related to tipping

• You need to have a written tipping policy in place—unless tips are received occasionally or as an exception

• Failure to comply with the new law will give workers the right to take action against you

The law applies to “qualifying tips, gratuities and service charges” which includes payment made via card, in cash or via an alternative method.

Non-monetary tips can also be qualifying tips if they are received or controlled by yourself.

For example, a qualifying non-monetary tip could include a voucher, stamp, token, or similar item that has a fixed value which can be expressed in monetary terms or exchanged for money, goods or services.

What are the key points of the Act employers must know?

Fair distribution of tips

You are required to make sure that tips are distributed fairly among your employees. The definition of “fair” can vary depending on the nature of your business.

For example, in a restaurant, tips might be divided between front-of-house staff (such as waiters and bartenders) and back-of-house staff (such as chefs) in a manner that reflects their contributions.

Transparent tip policies

If your employees receive tips on a regular basis, you must have a clear, written policy on how tips and service charges are distributed among employees.

For example, in the hospitality industry you must have a policy that sets out whether you require or encourage customers to pay tip, that you have a fair system for allocating tips and how they are allocated.

This policy should be accessible to all your staff members, and they should be informed about how tips are allocated.

Transparency is a key element of the new law, so your employees should understand exactly how their tips are calculated and distributed.

No deductions

You are not allowed to deduct any amount from tips or service charges for things like breakages, losses, or administrative costs.

The only time you can legally make deductions is for those legally required, like income tax.

Electronic payments

If customers pay tips via card or another electronic method, you must ensure that these tips are paid to the staff no later than the month following the receipt of the tip.

While processing fees for card payments used to be a concern, under the new rules, you cannot deduct these fees from your employees’ tips.

Record keeping

The Act requires you to maintain accurate records of all tips received and how they are distributed. These records must be kept for at least three years.

Not only does this provide transparency for your employees, but it also ensures that you can demonstrate compliance if your business is audited or inspected by authorities.

How to make sure your business stays in line with the law

To comply with the Employment Allocation of Tips Act 2023, you will need to:

Review your current tipping practices

Assess whether your current system for distributing tips aligns with the legal requirements. If you’ve been retaining a portion of tips or service charges, you’ll need to stop this immediately.

Develop a written tips policy

Although, it’s only employers in industries where tips are given on a regular basis that are legally required to have a policy in place—it’s always best to have a policy to protect your business.

So, if you don’t already have a clear tipping policy, now is the time to create one. This policy should explain how tips are allocated, and it should be communicated clearly to all employees.

Train managers and supervisors

Your management team must be aware of the law, especially those who handle payroll or are responsible for managing tips. Proper training will help prevent any mistakes or misinterpretations of the new rules.

Keep detailed records

Start keeping detailed logs of how much in tips is received and how it is divided among staff members. This record-keeping will protect you in case of any disputes and ensure you have the necessary documentation in case of an audit.

October 2026 update: further changes to tipping law 

The government has consulted on further changes to tipping law that are expected to come into effect in October 2026. These changes form part of the wider reforms introduced through the Employment Rights Act 2025, which aims to strengthen worker protections and increase transparency around pay and workplace practices. These proposals build on the Employment (Allocation of Tips) Act 2023 and focus on worker consultation and greater transparency around how tipping policies are set and reviewed.  

Final details will be confirmed following publication of an updated statutory Code of Practice. 

What is expected to change from October 2026? 

The tipping rules introduced in October 2024 require employers to allocate qualifying tips fairly, pay them out in full, and keep clear records. From October 2026, the government proposes to strengthen these rules by introducing formal consultation requirements when tipping policies are created or reviewed. 

These changes are intended to ensure workers have a meaningful voice in how tips are distributed, not just visibility of the outcome. 

Employers will be required to consult workers on tipping policies 

Under the proposals, employers would be required to consult workers when developing, reviewing, or changing a written tipping policy. Where a recognised trade union or worker representatives exist, consultation should take place through them. If not, employers should consult directly with the workers who are affected by the tipping arrangements. 

Consultation is expected to take place before a policy is finalised, rather than after decisions have already been made. 

Tipping policies must be reviewed regularly 

The consultation proposes that tipping policies must be reviewed at least once every three years. Each review would require consultation with workers again, following the same approach used when the policy was first introduced. 

This is intended to prevent tipping policies becoming outdated or disconnected from how tips are earned and shared in the workplace. 

Employers must share an anonymised summary of worker views 

Following consultation, employers would be expected to provide workers with a written, anonymised summary of the views expressed during the consultation process. This summary should be made available to all workers at the relevant place of business. 

The aim is to demonstrate that worker feedback has been genuinely considered, while protecting individual anonymity. 

Preparing for the October 2026 tipping changes 

Although these changes are not yet in force, employers can prepare by: 

• Identifying who would represent workers during consultation 

• Documenting how consultation will take place and how feedback will be recorded 

• Scheduling future policy reviews to meet the proposed three-year requirement 

• Ensuring existing tipping records and written policies remain up to date 

Being prepared will make it easier to adapt once the updated Code of Practice is published. 

Consequences for employers who don’t follow the law

If you fail to comply with the Employment Allocation of Tips Act 2023, you could face financial penalties, employee grievances, or legal claims.

Workers can file a claim with an employment tribunal if they believe you have:

• Failed to allocate tips fairly

• Failed to pay tips by the end of the month following the month in which the tip was paid by the customer

• Failed to keep your record keeping obligations

• Failed in your obligations to have a written policy (if required for your industry)

Get help with the fair allocation of tips

The Employment Allocation of Tips Act 2023 represents an important shift in how tips must be handled in the UK.

As an employer, it’s your responsibility to ensure that tips are distributed fairly and transparently. By reviewing your practices, implementing clear policies, and keeping accurate records, you can ensure compliance with the law and avoid any potential disputes or penalties.

Taking these steps not only ensures legal compliance but also helps foster a positive workplace culture where employees feel valued and fairly rewarded for their contributions.

If you need help navigating the Employment Allocation of Tips Act 2023, BrightHR provides round-the-clock HR and employment law advice.  

Plus, you get access to our online HR document library, complete with a customisable Fair Allocation of Tips Policy and other essential guidance and documents you need to make sure your business is in line with the law.