The UK’s Employment (Allocation of Tips) Act 2023 has changed how hospitality businesses must handle tips, gratuities, and service charges. Most employers understand the headline rule: 100% of tips must go to workers.
However, several lesser-known provisions in the legislation can easily catch employers out if they’re not careful. Here are three rules that many businesses overlook, but which could lead to disputes, compliance problems, or even employment tribunal claims.
1. Agency Workers Must Receive a Share of Tips
Many hospitality venues rely heavily on agency workers during busy periods, particularly restaurants, bars, hotels, and event venues. What some employers don’t realise is that the law doesn’t just apply to permanent employees.
Under the Employment (Allocation of Tips) Act 2023, agency workers are entitled to participate in tip allocations if they are working in roles where tips are received. If you use temporary staff supplied by an agency for waiting tables, running food, working behind the bar, or providing customer-facing service, they should normally receive a fair share of the tips generated during their shifts.
Where employers get caught out
A common mistake is to exclude agency staff from the tip pool because they are not directly employed by the venue. However, if those workers are contributing to the customer service that generates tips, excluding them could be considered unfair under the law. Employers should make sure their tip allocation policies explicitly include agency workers where appropriate.
2. Tips Must Be Allocated Within One Month
Another rule that can cause compliance problems is the strict timeline for distributing tips. The legislation requires employers to allocate tips no later than the end of the month following the month in which they were received. For example, if tips are collected during March, they must be distributed by the end of April.
Some hospitality businesses historically held tips and distributed them, quarterly, seasonally, or after long reconciliation periods. Under the new law, this approach may no longer be compliant.
Where employers get caught out
Delays often happen because tip data isn’t reconciled quickly enough or payroll systems aren’t set up to process tips monthly. If tips are not allocated within the required timeframe, workers may be able to challenge the practice.
3. Tips Should Normally Stay Within the Site That Generated Them
For multi-site hospitality businesses, another lesser-known expectation is that tips should typically be allocated among workers at the venue where they were earned. The statutory Code of Practice on Fair and Transparent Distribution of Tips makes it clear that tip allocation should reflect where the tips were generated.
What this means for hospitality groups
If a restaurant group collects service charges across multiple locations, distributing them across the entire business could raise fairness concerns. For example, if Restaurant A generates significantly higher tips than Restaurant B, the business pools all tips centrally and redistributes them equally, workers at Restaurant A could reasonably argue that their tips are subsidising other locations.
Where employers get caught out
This issue often arises when groups operate centralised payroll or Tronc systems, service charges are collected through a head office account, or tips are shared across brands or venues. Employers should ensure their tip policies clearly explain how tips are allocated and why the method is fair.
