By Conrad Hazlitt, Employment Solicitor
The Current Position
The previous conservative government introduced the Employment (Allocation of Tips) Act 2023 in response to concerns over unfair practices around tipping, particularly within the hospitality and service sectors. Accordingly, since 1 October 2024, all tips, gratuities and service charges which employers have “control or significant influence over” have had to be passed on to workers without deductions (save only for tax and NI) in a way which is transparent and ensures they are “allocated fairly” amongst the workforce. To ensure consistency and transparency, where tips are paid on "more than an occasional and exceptional basis", employers have had to develop and make available to their staff written policies detailing “whether the employer requires or encourages customers to pay tips” and how tips received are to be allocated between workers.
Although the requirements introduced in October 2024 have brought about some much-needed (and long-overdue) changes, employers have thus far retained wide discretion as to how tips are allocated for the purposes of affecting a “fair” allocation. In particular, the statutory ‘Code of Practice on fair and transparent distribution of tips’ acknowledges “there may be legitimate reasons why employers choose to allocate different workers different proportions of tips” with relevance factors listed as potentially including - amongst other things - i) “type of role / work for example distribution between front of house and backroom workers”, ii) “hours worked” iii) “length of time served with the employer and customer intention”.
Planned Changes
As part of its pre-election ‘Make Work Pay’ agenda (published in May 2024), Labour made the following commitment: “Labour will strengthen the law to ensure hospitality workers receive their tips in full and workers decide how tips are allocated” (our emphasis). The government is planning to introduce new requirements for employers to consult on and to review their policies dealing with tips. Specifically, under the planned reforms employers who since October 2024 have had to develop written policies dealing with tips, will be required to:
- Consult with recognised unions or elected workplace representatives (or in the absence of either, then with the affected workers directly) before producing the first version of their policy on the allocation of tips;
- Review their tipping policies “from time to time” and at least once every three years, again following consultation; and
- Provide the workforce with an anonymised summary of the “views expressed” by workers (or their representatives) during any such consultation process.
The Government launched a consultation on the above proposals on 5 February 2026, which closed on 1 April 2026.
Views are sought by both workers and employers on:
- How tips are currently distributed, for example, whether they are paid directly to individual staff or are pooled via a worker/employer or third-party tronc-operated tronc.
- The factors to consider when allocating tips
- How tips are passed onto workers, e.g. through payroll or a separate payment method,
- Whether workers have been consulted on how tips are allocated and distributed
Whether the employer has a tipping policy and, if so, whether it is accessible to workers.
The consultation also seeks the views of trade union including how long they expect it will take to consult or engage with workers ahead of consulting the employer on the tips policy.
Views are also sought on knowledge of the Statutory Code of Practice and non-statutory guidance as well as how confident workers feel about taking legal action.
When will the changes take effect?
The mandatory duty to consult with the recognised union or elected reps or (where there are no elected reps) workers where the union is not recognised is due to come into force in “October 2026” (a specific date having yet to be set) alongside an updated Code of Practice.
Workers will also be able to bring a claim in an employment tribunal if the employer fails to consult. Tribunals can order the employer to compensate a worker by up to £5,000.
Practical Impact of the changes
The government appears to have rowed back from its stated desire to hand full control of how tips are allocated to workers, opting instead for a mandatory duty on employers to consult with recognised unions and elected reps where the union is not recognised.
Good employers should already be looking to consult with recognised unions and elected representatives in advance of the provisions coming into force in October, including a review of any existing policies. This should also include how tips are allocated fairly and transparently among the different types of workers, from zero-hour workers, agency and part-time workers.
The Government Factsheet: Tips and Gratuities, makes clear that the mandatory duty to consult “must represent a genuine consultation – not simply a paper exercise” hence the requirement for workers to be provided with a summary of the views expressed.
Commentary
Plainly, the planned incoming changes fall short of Labour’s pre-election pledge to “ensure […] workers decide how tips are allocated”. That being said, the envisioned incoming rules ought to at least give trade unions and their members a greater voice in deciding how tips are distributed, which are fair and transparent. Employers who simply go through the motions are likely to be at greater risk of tribunal claims
Ultimately, these reforms represent a meaningful step towards ensuring that tipping arrangements - often an important part of some sector workers’ incomes - are designed in ways that reflect the views of those most affected by them.
