The Employment (Allocation of Tips) Act 2023 is the UK law that requires employers in hospitality and similar industries to pass 100% of qualifying tips, gratuities, and service charges to workers, to allocate them fairly, and to maintain a written tipping policy. It came into force on 1 October 2024 across England, Scotland, and Wales (Northern Ireland is excluded).
This guide is the comprehensive employer reference. It covers who the Act applies to, what counts as a qualifying tip, the six core duties, the tribunal mechanics, and the most common ways operators get caught out.
Who the Act applies to
The Act applies to any employer in England, Scotland, or Wales where workers receive tips, gratuities, or service charges in connection with their employment. There’s no exemption for small businesses, no minimum number of staff, and no minimum amount of tips. If your business receives qualifying tips, you’re in scope.
Workers covered include employees and most agency workers. The Act applies regardless of role: front of house, kitchen, support staff, and casual workers are all in scope where they’re working at a place of business that receives qualifying tips.
What counts as a qualifying tip
A qualifying tip is one that is paid by a customer in connection with a service and comes into the employer’s possession or control. In practice that covers:
- Card tips and gratuities processed through the venue’s payment system
- Service charges (discretionary or mandatory) added to bills
- Tips paid into a venue-controlled cash Tronc or pool
- Online tipping and digital tips routed through the business
What’s not covered:
- Cash tips paid directly from a customer to a worker that never enter the employer’s possession or control
- Tips paid to self-employed workers in their own right (subject to other rules)
If the business has any control or significant influence over the tip, including pooling it, allocating it, or holding it temporarily before distribution, it’s a qualifying tip and the Act applies.
The six core duties on employers
1. Pass 100% of qualifying tips to workers
No deductions other than statutory ones (income tax). Card-processing fees, breakages, administrative charges, and any other employer-side deduction are prohibited.
2. Allocate fairly and transparently
Allocation must be fair between workers. The statutory Code of Practice on Fair and Transparent Distribution of Tips, which came into force on the same day as the Act, sets out the factors an employer can legitimately use:
- Type of role and work performed
- Basic pay and how workers are engaged
- Hours worked during the relevant period
- Individual or team performance
- Seniority or level of responsibility
- Length of service
- Customer intention (where it can be identified)
3. Maintain a written tipping policy
Required for any business where qualifying tips are received on more than an occasional and exceptional basis. The policy must be made available to all workers and must cover: whether the employer requires or encourages tipping, how tips are accepted, how they’re allocated, and the principles the allocation rests on.
4. Keep records for three years
Records of qualifying tips received and how they were allocated must be kept for three years from the date the tip was received. Records must be sufficient for a worker to verify their own allocation.
5. Respond to worker information requests
Workers can request relevant records about how the tipping policy has been applied to them. The employer must respond within four weeks. Each worker is limited to no more than three requests in any 12-month period.
6. Pay tips no later than the end of the month after receipt
Qualifying tips must be paid to the worker no later than the end of the month following the month of receipt. A tip received on 15 June must reach the worker by 31 July at the latest.
Both rules apply at the same time. Tips give workers extra legal protection without reducing the wage floor they’re entitled to.
Tribunal claims and remedies
Enforcement is through the employment tribunal. Workers can bring two types of claim:
Allocation and payment claims. For breaches of the duty to pass on or fairly allocate qualifying tips. Time limit: 12 months from the date of failure, or the date of the latest failure in a series of failures.
Written policy claims. For breaches of the duty to maintain a written tipping policy or to make records available. Time limit: 3 months from the date of failure.
Available remedies:
- A public declaration of non-compliance
- An order requiring the employer to revise its allocation or comply with the written policy duty
- An order requiring payment of tips properly due to the worker
- Compensation of up to £5,000 per worker for financial loss
- Tribunals can extend compensation to other workers at the same place of business who didn’t bring claims themselves
A tribunal must take account of the statutory Code of Practice when assessing whether an employer has acted fairly. Failure to follow the Code is not by itself proof of unfair conduct, but it weighs against the employer.
Common breaches and how to avoid them
No written tipping policy. The fix is straightforward. Use a template aligned with the Code of Practice, get it approved by your legal advisor, and make it available to all workers.
Allocation decisions sit with the owner or a manager with hiring authority. A Tronc is the cleanest fix. The troncmaster must be independent.
Card-processing fees deducted from the pool. Banned since 1 October 2024. Absorb processing fees in the business’s operating costs, not in tips.
Records kept in unverified spreadsheets. Three years of distribution data is the minimum. Spreadsheets get lost, overwritten, or filled with errors. A Tronc software audit trail handles this automatically.
Tips used to bridge to National Minimum Wage. Always a breach. Base wage must independently meet NMW for the worker’s age.
Late tip payments. Tips received in any month must reach workers by the end of the following month. Running this monthly with proper payroll integration keeps you compliant.
How to comply, in order
- Decide whether to operate a Tronc (recommended for the National Insurance exemption and clean allocation independence)
- Appoint a troncmaster who is independent of the employer (not an owner, director, or anyone with hiring authority)
- Draft a written tipping policy covering acceptance, allocation factors, frequency of payment, and worker rights
- Make the policy available to all workers
- Register the Tronc PAYE scheme with HMRC if you’re using a Tronc
- Set up records that capture every qualifying tip received and how it was allocated, with a three-year retention
- Pay qualifying tips by the end of the month following receipt
- Respond to worker information requests within four weeks
- Review the policy annually, or sooner if your team or operating model changes
Frequently Asked Questions
When did the Allocation of Tips Act come into force?
1 October 2024. The Act received Royal Assent on 2 May 2023, and the commencement date was confirmed by regulations made in 2024.
What happens if I don’t have a written tipping policy?
Workers can bring a tribunal claim within three months. The tribunal can order you to put one in place and award compensation up to £5,000 per worker for financial loss.
Can I deduct card-processing fees from the tip pool?
No. Card-processing fees, breakages, and administrative deductions are prohibited. Statutory deductions (income tax, NI where applicable) are the only permitted ones.
How are agency workers treated?
Most agency workers are covered when they work at the venue receiving qualifying tips. They have the same right to a fair share of the pool as direct employees performing comparable work.
How quickly must tips be paid to workers?
No later than the end of the month following the month of receipt. A tip received on 10 March must reach the worker by 30 April.
Read next
For when the Act came into force and what employers needed to have ready by then, see the Allocation of Tips Act start date guide. For a structured check against the Act’s requirements, see the UK Tipping Act compliance checklist. For the HMRC-side tax and PAYE rules that run alongside the Act, see the HMRC tips and gratuities checklist.
For the distribution mechanism most operators use to comply, see the Tronc Explained pillar. For the customer-facing side of service charges, see Service Charge vs Tips.
