The Employment (Allocation of Tips) Act 2023: A Compliance Guide for Employers
By Troncmaster Solutions · Last reviewed 8 October 2026
Article Overview
Since 1 October 2024, employers in Great Britain have had a legal duty to pass on tips, gratuities and service charges to their workers, to share them out fairly, and to be open about how that is done. In practice this comes down to six things:
Pass tips on in full, with no deductions other than tax.
Allocate them fairly between workers.
Pay them no later than the end of the month after the customer paid.
Have a written tipping policy (where tips are more than occasional).
Keep records for three years.
Answer workers who ask to see their records.
Workers can take an employer to an employment tribunal if these duties are not met. A further change, mandatory worker consultation on your tipping policy, is on its way but has been delayed. See “What is changing” below.
Who The Employment (Allocation of Tips) Act 2023 applies to
Employers in England, Scotland and Wales. The Act does not extend to Northern Ireland.
Workers, not just employees. It protects “workers” as defined in the Employment Rights Act 1996, which includes agency workers, who have similar rights.
Any sector where tips arise. Restaurants, pubs, bars, cafés, hotels, casinos, golf clubs, salons and other service businesses are all covered. There is no small-business exemption.
Tips paid on or after 1 October 2024. The Act is not retrospective.
What counts as a “qualifying tip”
Broadly, the Act covers:
tips, gratuities and service charges that your business receives, for example card tips or a service charge added to the bill, whether discretionary or mandatory; and
cash tips paid to a worker where you control, or significantly influence, how they are shared. For example, a house rule that all cash tips go into a shared pot and are split at the end of the shift.
The Act generally does not interfere where you have no control or significant influence, such as a cash tip a customer hands to a worker who keeps it, or staff informally pooling tips among themselves without any employer involvement.
The Act looks at the amount the customer actually paid, so card processing charges cannot be taken off before tips are passed on.
Your six duties
1. Pass tips on in full
Qualifying tips must reach workers without deductions, other than those required by tax law. That means no taking a cut for card fees, administration or “handling”. Tips are also treated as wages under the Employment Rights Act 1996, so unauthorised deductions can be challenged on that basis too.
2. Allocate tips fairly
Fair does not mean equal. You can share tips differently between roles, provided the method is based on clear, objective factors that are reasonable for your business, such as hours worked, role or seniority, and applied consistently. It must not discriminate against anyone on the basis of a protected characteristic.
3. Pay on time
Allocation and payment must happen no later than the end of the month following the month in which the customer paid. A tip paid on 23 June must reach workers by 31 July.
4. Have a written tipping policy
If qualifying tips are paid on more than an occasional or exceptional basis, you need a written policy explaining how tips are dealt with and how they are allocated. It must be written in plain language, made available to all workers, and provided in an accessible format if a worker with a disability asks. If you believe tips at your business are only occasional or exceptional, record your reasons and tell your staff.
5. Keep records for three years
Records must show how each qualifying tip was dealt with, including the amount received and the amount allocated to workers (directly, or through an independent tronc operator). Keep them for at least three years from the date the tip was paid.
6. Respond to requests for records
A worker can ask in writing to see the record of tips relating to them, once in any three-month period. You should respond within four weeks. Because of data protection law, your response should cover that worker's own information, not every worker's.
What to put in your tipping policy
A good policy is short, specific and easy to follow. As a checklist, it should cover:
which tips, gratuities and service charges it covers (card, cash, discretionary, mandatory);
which workers and which sites are included, including agency workers and back-of-house staff if relevant;
how tips are shared out: the factors used (hours, role, points) and who makes the decision;
how often tips are paid, and that payment will be no later than the end of the following month;
how tips appear on payslips and how they are taxed;
how tips are recorded, and where workers can read the policy;
how a worker can ask for their records, and how to raise a concern;
how leavers, new starters, long-term absence and part-year workers are treated; and
the date the policy was adopted and when it will next be reviewed.
How tronc schemes fit in
A tronc is an arrangement where pooled tips and service charges are allocated by an independent “troncmaster” and paid through payroll. Done properly, it can also reduce National Insurance costs. See our Tronc Calculator for how that works.
Two separate sets of rules apply, and meeting one does not automatically satisfy the other:
The Act requires fair allocation, a written policy, timely payment and records.
HMRC's tronc rules require the troncmaster to be genuinely independent of the employer if the NIC exemption is to apply.
If you use a tronc, your tipping policy should explain it, and your records should show the amounts passed to the troncmaster and how they were allocated. Using a tronc is optional.
The Act applies in the same way whether or not you have one.
Our fee is invoiced to the employer. It is never taken from the tip pot, so every pound of tips, gratuities and service charges goes to your workers, less only the tax required by law.
What is changing: worker consultation
The Employment Rights Act 2025 (section 14) will add new duties around tipping policies. Employers will have to:
consult workers when they introduce or revise a written tipping policy (through a recognised trade union or elected representatives where they exist, or directly with workers where they do not);
review the policy at least once every three years, repeating the consultation each time; and
make an anonymised summary of the consultation feedback available to workers.
These duties were originally expected from 1 October 2026, but the timetable has slipped. The government withdrew its first draft revised Code of Practice on 13 July 2026 after criticism, published a replacement draft on 19 August 2026, and ran a consultation that closed on 29 September 2026. Commencement regulations and parliamentary approval of the Code are still needed, and the government has indicated the changes will take effect by the end of 2026. At the date of this guide they are not yet in force.
What to do now:
The current statutory Code of Practice already encourages consulting workers, and many employers already do.
Start planning how you would consult, and keep a written record of any consultation you carry out.
Put a review date in your policy.
Re-check this page before acting on the timings, as they may change again.
What happens if you get it wrong
Failing to allocate fairly or to pay tips on time: a worker can bring an employment tribunal claim within 12 months of the failure.
Failing to have a policy or keep records: a worker can bring a claim within three months of the failure.
Outcome: the tribunal can make a declaration, order you to put things right (for example, revise an allocation), and award compensation of up to £5,000 for financial loss. Awards can extend to other affected workers who did not make the complaint themselves.
Beyond the tribunal, the practical cost is staff trust. If staff believe tips are being handled unfairly, you are likely to lose people. If a tronc is set up wrongly, you may also face HMRC questions about National Insurance.
Quick compliance checklist
We pass on 100% of qualifying tips, gratuities and service charges, with no deductions except tax.
Our allocation method is based on clear, objective factors and is applied consistently.
Tips reach workers by the end of the month after the customer paid.
We have a written, plain-language policy that every worker can access.
We record every qualifying tip and how it was allocated, and keep records for three years.
We know how to respond to a worker's request for records within four weeks.
Our policy explains our tronc arrangements, if we have one.
We have a review date and a plan for worker consultation.
Frequently Asked Questions
Do we need a tipping policy if we only get a few tips?
Only if qualifying tips are paid on more than an occasional or exceptional basis. If you think you fall below that line, record why and tell your staff, because that is the sort of judgement a tribunal could test.
Can we deduct card processing fees from tips?
No. The Act looks at the amount the customer paid, and the only deductions allowed are those required by tax law.
Does “fair” mean everyone gets the same share?
No. Fair means the method is clear, objective and consistently applied. Different shares for different roles or hours can be fair.
Do tips count towards the minimum wage?
No. Tips do not count towards the National Minimum Wage or National Living Wage. Base pay must be paid separately.
Do we need a tronc to comply?
No. A tronc is an option, not a requirement however gratuities would be treated as income therefore savings would not apply.
How Troncmaster Solutions can help
We run independently managed tronc schemes for hospitality and service businesses across the UK. We calculate and distribute tips through your payroll, keep the records and audit trail, and deal with new starters, leavers and role changes. All on a 30-day rolling contract. If you would like to talk through how a tronc fits with your tipping policy, get in touch for a free quote.
Important information
This guide is general information, not legal advice, and it reflects the position as at 8 October 2026. The law and official guidance on tipping are changing. Take advice from a qualified employment solicitor or other adviser before making decisions for your business.
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