If you work in hospitality, where customers leave tips, you’ve probably heard about the Employment (Allocation of Tips) Act 2023. It came into force on 1 October 2024, and it’s changed the game for how tips are handled in the UK.
But what does it actually mean for you as an employee? We’ve put together the essential information you need to know about your rights under the new legislation.
What the Act actually does
In simple terms, this new law makes it illegal for employers to withhold tips from staff. It ensures that tips, gratuities, and service charges are distributed fairly and transparently among workers.
The Act was created because too many workers weren’t receiving the full amount of tips that customers intended for them. Some employers were taking chunks out for admin fees or keeping service charges rather than passing them on to staff. That stopped with the new legislation.
Who’s covered
If you’re a worker in a business where tips are received, then yes, this Act applies to you. This includes employees on contracts as well as eligible agency workers.
The Act covers England, Scotland, and Wales. If you work in an industry where non-direct tipping happens, you’re covered.
What counts as a tip under the new law
The Act covers two main types of tips.
First, there are employer-received tips, which are usually paid by card or digital payment and are given as an option to add to the bill. Even if they are automatically added to the bill, as long as the customer has the option of removing or changing the tip amount, they are closed as discretionary and are classed as
tips under the new legislation. Even though this amount goes into the business’s bank account, it is not classed as business income and must be distributed to staff.
Second, there are what are called “other qualifying tips,” which include cash tips that your employer has control or influence over.
Here’s the crucial bit. If a customer hands you cash directly and your employer lets you keep it in full, that’s not covered by the Act because it’s already yours. But if tips go through any kind of collection or pooling system, even if theyu are handed to you, they’re covered.
Your rights under the new Act
You have the right to receive your full allocation of tips without any deductions apart from statutory deductions such as Income Tax. Your employer must pay your share of tips by the end of the month following the month the customer paid the tip.
You also have the right to a written tipping policy that explains how tips are allocated. This policy must be available for you to see, and it should be clear and transparent about how the system works.
If your employer isn’t following the rules, you can raise a complaint to an employment tribunal within 12 months of the problem occurring.
What fair allocation means
The Act requires that tips be allocated fairly, but what does “fair” actually mean? According to the statutory Code of Practice that accompanies the Act, fairness depends on several factors.
These include your role, your level of responsibility, how much customer interaction you have, and your seniority. The key is that the allocation system should be reasonable, clear, and agreed upon with staff where possible.
Your employer should consult with workers to get broad agreement that the system is fair. While there’s no perfect formula, transparency is crucial and these allocation rules should not change without further consultation.
The no-deductions rule
One of the main points of this Act is that employers must pass on tips in full, without any deductions for admin fees, credit card processing charges, or anything else.
This is a significant change from past practices, where some employers would skim off portions of tips before distributing them. 100% of tips received must be paid to the employees.
It is worth noting, however, that tips are still subject to income tax, and, if a tronc scheme is not in place, also to National Insurance deductions.
Agency workers are covered too
One of the big changes in the new legislation is that agency workers now also have a share of the pooled tips. If you’re supplied by an agency to work somewhere that receives tips, and you’re involved in providing service to customers, you should receive a fair allocation of tips.
The tips can be paid through your agency if that’s the arrangement, but the business where you work must still ensure you get your fair share.
When tips should be paid
Your employer must pay your allocation of tips no later than the end of the month following the month in which the customer paid the tip.
So, if a customer leaves a tip in January, you must receive your share by the end of February at the latest.
What to do if things aren’t right
First, check your tronc scheme agreement or employer’s written tipping policy. Every business that receives tips more than occasionally must have one, and it should explain how the system works.
If you think something isn’t right, raise it with your Troncmaster (if there is a tronc scheme in place) or employer first. They’re required to keep records of all tips received and how they’re allocated, and you have the right to request this information.
If the issue isn’t resolved and you believe your rights under the Act are being violated, you can bring a claim to an employment tribunal within 12 months. If a tribunal finds in your favour, they can order your employer to pay you the tips you’re owed, plus compensation of up to £5,000.
You can’t opt out
You cannot contract out of your rights under the Act. Even if your employer asks you to sign something saying you’re okay with a different arrangement, it won’t be legally valid. The Act’s protections apply regardless.
However, every employee has the right to NOT be included in the distribution of the tips. We have come across a couple of examples of employees on Universal Credit who have advised the Troncmaster or employer that they do not want to receive tips, as it would affect the credits they receive.
Tax treatment hasn’t changed
The Act doesn’t change the tax or National Insurance treatment of tips. How your tips are taxed depends on how they’re distributed.
Tips that go through your payroll are subject to income tax and possibly National Insurance. Tips distributed through a properly operated tronc system are subject to income tax but not National Insurance, which means you have less deductions..
What you should do now
Check whether your employer has published a written tipping policy. If tips are part of your income, make sure you understand how they’re being allocated.
If you have concerns, raise them with your Troncmaster or employer. The Act is designed to protect you and ensure you receive what you’re entitled to.
The Allocation of Tips Act is a significant win for workers in tipping industries. It ensures that tips go where they’re meant to go -to the people who served the customers.
If you’re an employee who receives tips, this Act strengthens your rights and gives you clear protections. Make sure you’re aware of your employer’s tipping policy and don’t hesitate to speak up if something doesn’t seem right.