Wow, it’s hard to believe that it has been 10 months since the watershed moment for UK hospitality, and the Allocation of Tips legislation became law.
After years of ‘best practice’ advice and tronc tax arrangements that sought to bring fairness and transparency to the tipping practices of the hospitality sector, we saw legislation that didn’t just address the tax treatment of tips, gratuities, and service charges, but also fundamentally changed how these funds must be distributed.
The goal was simple – to ensure every eligible pound (minus tax) reaches your hospitality workers fairly and transparently.
But, as with all new legislation, the challenges are often found in the details of how it should be applied. It’s still early days, but 10 months have given operators a chance to implement any changes. So, where are we with this?
What’s actually changed in practice?
Many operators were already doing the right thing – passing on all tips and service charges to their teams. But even those who think they are doing the right thing may not be compliant.
No deductions (except tax)
One of the problem areas we have come across is those operators who were deducting the costs associated with accepting and distributing the tips from the tip pool. Whilst it was common and accepted practice to deduct things like credit card transaction fees and third-party Troncsmaster fees from the tip pool, this is
no longer possible. 100% means 100% (excluding tax).
No more tip-smoothing
Even well-prepared businesses have discovered new challenges. Take tip smoothing, for example. Some operators historically spread tip payments across the year to give staff more consistent earnings. Despite no widespread demand from workers to change this approach, the legislation has made it impossible to continue with tips having to be paid by the end of the month after they have been collected..
No more tip pooling across sites
Another change, not demanded by the workers, was the practice of tip pooling across sites. For multi-site operators, prior to the legislation, they had the option of distributing tips collected at a venue to the staff working in that venue or pooling and allocating across the employees.
The new legislation prevents this, as tips must be distributed to the workers who worked at the time and venue where the tips were collected.
Although on the surface this sounds fair, there are situations where tip pooling was actually implemented to be fair to all staff. Let’s take the example of a multi-site operator who had some outlets in prime locations and others in locations with less footfall. The difference in the amount of tips being collected is probably more to do with the traffic and clientele than the performance of the staff. By pooling the tips from all venues, it rewarded all staff fairly.
Without this approach, operators could face challenges getting staff to work in the less busy venue because they know they will take home fewer tips. But, unfortunately, this flexibility is one of the casualties of the new legislation.
The challenge of defining ‘fair’ and ‘transparent’
The concepts of fairness and transparency sit at the heart of the tipping legislation, and are based on standards and principles rather than black-and-white rules.
Check out our comprehensive blog ‘How do we define fairness in a tips allocation policy?’, for a deeper dive, but in essence, the issue is that ‘fairness’ and ‘transparency’ are subjective.
Different team members will have different views on what’s equitable. Without clear legal precedents to guide decisions, businesses are left to interpret these principles in good faith. HR teams are increasingly fielding complaints that lack definitive answers.
Many of these disputes will likely escalate to Employment Tribunals. This seems not just probable but inevitable as the sector continues to grapple with the practical implications of the legislation.
Unfortunately, the legislation and Code of Practice do little to pin down what is meant by these two terms.
The flat distribution trap
Some operators have responded by adopting a flat distribution model where everyone gets the same share regardless of role, experience, or performance.
The thinking is that simplicity equals fairness.
While this might seem equitable on paper, it can create unintended consequences:
- Reduced motivation among high-performing team members
- A sense of entitlement among others
- Negative impact on guest experience
- Ultimately, a reduction in the volume of tips received
The good news is that the Code of Practice allows for a more nuanced approach to ‘fairness’. Tips allocation can be differentiated based on role, responsibility, and performance, provided it’s done clearly, objectively, consistently, and reasonably.
Ideally, involve your staff in the decision and also make sure everything is clearly documented and communicated (transparency) to all staff, so they understand why tips are allocated in that way (fairness).
Balancing transparency with privacy
There’s confusion about what ‘transparency’ actually means in practice. Many workers interpret transparency as their right to know everything, including details about the individual compensation of colleagues.
While workers have a right to understand how tips are allocated, they do not have a right to the private income information of other staff members. Therefore, businesses should be cautious in balancing the information they share with employees against their data protection obligations. Sharing detailed breakdowns
that identify individual earnings or providing enough detail for workers to calculate others’ earnings can breach privacy laws.
The Employment (Allocation of Tips) Act 2023 is clear on this point. While workers can request information about tip distribution, this doesn’t override the Data Protection Act 2018. Regulation 27J(10) confirms that personal data, including individual earnings or identifiable allocation details, must be protected.
In essence, transparency must not come at the cost of privacy.
What your business should be doing now
To stay compliant and maintain team morale, we recommend the following approach:
1. Audit your current system
Review your current tronc or tip distribution model for both compliance and fairness. Don’t assume that because it worked before October 2024, it works now.
2. Document everything
Create clear policies and ensure they’re applied consistently. This documentation will be crucial if disputes arise.
3. Use technology wisely
Implement systems that provide visibility without compromising privacy. The right technology can help you demonstrate fairness while protecting individual data.
The ‘Tips and Troncs’ Solution
Many hospitality businesses are finding that outsourcing their tronc management to specialists like ‘Tips and Troncs’ removes the grey areas and compliance concerns.
Our independent Troncmaster service ensures:
- Clear separation between business leadership and tip allocation decisions
- Compliance with all current legislation requirements
- Fairness through properly structured allocation rules
- Transparency without privacy breaches
- Cost savings through compliant NI arrangements
The reality is that managing tips fairly, transparently, and in compliance is now a specialised skill. Getting it wrong can be costly, not just in financial terms, but in staff morale, guest experience, and potential tribunal costs.
Ten months in, the hospitality sector is still adapting to what tipping means in 2025 and beyond. Those who are thriving are the ones who’ve embraced the change, invested in proper systems, and sought expert guidance where needed.
If you’re still struggling with tip allocation compliance, or if you want to ensure your current system is robust enough to withstand scrutiny, ‘Tips and Troncs’ can help.
Contact us today for a no-obligation consultation