Tipping by customers is not mandatory in the UK. What is mandatory, since 1 October 2024, is what happens to a tip once it’s given: under the Employment (Allocation of Tips) Act 2023, employers in England, Wales and Scotland must pass on 100% of tips, gratuities and service charges to workers, in full, with no deductions other than those required by tax law. This guide sets out exactly what the Act requires, who it covers, and what employers need to have in place to comply.
What does the Employment (Allocation of Tips) Act 2023 actually require?
The Employment (Allocation of Tips) Act 2023 (c. 13) amends the Employment Rights Act 1996 to place four core duties on employers who receive, or have control or significant influence over, qualifying tips. Employers must: pay 100% of qualifying tips to workers with no deductions other than those required by tax law; allocate tips fairly between workers, including through a genuinely independent tronc where used; pay tips out no later than the end of the month following the month in which the customer paid them; and, where tips are paid on more than an occasional and exceptional basis, maintain a written tipping policy available to all affected staff.
Which businesses and tips does the Act cover?
The Act applies to any employer whose workers receive tips, gratuities or service charges that the employer receives directly, or over which the employer has control or significant influence. In practice this covers most of hospitality, plus hairdressing, salons, taxi and delivery services, and other tipped-service sectors. It covers cash tips where the employer exercises control over collection or distribution, card and digital tips processed through the business, and discretionary service charges added to a bill. A cash tip handed directly to a worker, over which the employer has no control at all, generally falls outside the Act’s scope.
When did the Tips Act come into force?
The Employment (Allocation of Tips) Bill received Royal Assent on 2 May 2023. It was originally expected to take effect from 1 July 2024, but commencement was pushed back and the Act came fully into force on 1 October 2024, together with the statutory Code of Practice on Fair and Transparent Distribution of Tips. There was no transition or grace period, employers were required to be compliant from that date.
How quickly must employers pay out tips?
Employers must pay qualifying tips to workers no later than the end of the month following the month in which the customer paid the tip. A tip taken in March, for instance, must reach the worker by 30th April at the latest. This applies whether tips are distributed directly by the employer or allocated through a tronc system.
Do employers need a written tipping policy?
Yes, if tips are paid on more than an occasional and exceptional basis. The written policy must set out how tips are dealt with, how they are allocated between workers, and which categories of worker (including agency and casual staff) are entitled to receive them. It must be made available to all workers it covers, not just held internally by management.
How is tronc taxed, and does using a troncmaster save money?
A tronc is a pay arrangement, traditionally run by a “troncmaster,” used to collect and share out tips separately from normal wages. Tips distributed through a genuinely independent tronc, one where the employer does not directly or indirectly determine individual allocations, are subject to PAYE income tax but not to National Insurance contributions, saving both employer and employee NICs. If the employer, rather than an independent troncmaster, decides how tips are allocated, the tips are treated as earnings for NICs purposes and both PAYE and NICs apply.
What records must employers keep, and for how long?
Employers must keep records of qualifying tips received and how they were allocated, whether directly or through an independent tronc, for three years from the date the tip was paid. These records need to be detailed enough to show compliance if challenged.
Can workers request to see the tipping record?
Yes. Workers have the right to request their tipping record covering the previous three years. Only one such request can be made in any three-month period, and the employer must respond within four weeks of receiving it.
What happens if an employer doesn’t comply?
A worker can bring a claim to an employment tribunal. If the claim succeeds, the tribunal must make a declaration, can order the employer to revise its tipping allocation, and can award compensation for financial loss caused by the breach.
Does the Act apply to agency and zero-hours workers?
Yes. Agency workers, casual staff and workers on zero-hours contracts have the same right to a fair share of qualifying tips as directly employed staff, and must be included in an employer’s written tipping policy where one is required.
FAQ
Is tipping mandatory in the UK?
No. There is no UK law that requires a customer to leave a tip. What changed on 1 October 2024 is that the Employment (Allocation of Tips) Act 2023 made it mandatory for employers to pass on 100% of any tips customers do leave to their workers, without deductions.
When did the Tips Act 2023 come into force?
The Employment (Allocation of Tips) Act 2023 received Royal Assent on 2 May 2023 and came fully into force on 1 October 2024, alongside the statutory Code of Practice on Fair and Transparent Distribution of Tips.
How quickly must an employer pay tips to workers?
No later than the end of the month following the month in which the tip was paid by the customer. For example, a tip received in March must reach the worker by 30 April at the latest.
Can an employer deduct anything from a tip before passing it on?
No, other than deductions required by tax law, such as PAYE income tax. Deductions for card processing fees, breakages, or administration costs are not permitted under the Act.
Do agency and zero-hours workers have to be included in tip distribution?
Yes. The Act gives agency workers, casual staff and zero-hours workers the same right to a fair share of tips as directly employed staff.
Does the Employment (Allocation of Tips) Act 2023 apply in Northern Ireland?
No. The Act and its Code of Practice extend to England, Wales and Scotland only. Northern Ireland is not currently covered.
What can happen if an employer doesn’t comply with the Tips Act?
A worker can bring a claim to an employment tribunal. If the claim succeeds, the tribunal can make a declaration, order the employer to revise how tips are allocated, and award compensation.
