Tipping practices have been subject to close focus in recent years. For workers in certain sectors, such as hospitality and leisure, tips, gratuities and service charges (which will be referred to as “tips” only in the remainder of this article) can be an important part of overall income; for customers, tips are usually paid on the assumption that the money will reach the people who provided the service.

As a result, the employment law on tips has undergone significant change, and further reforms are once again on the horizon as part of the Government’s broader “Make Work Pay” agenda. With the Employment Rights Act 2025 (ERA 2025) set to build on the framework established by the Employment (Allocation of Tips) Act 2023 (Tips Act 2023), employers in sectors where tips are received should be reviewing their current tipping practices and preparing for what comes next.

In June 2026, the Government published its response to a consultation on strengthening the law on tipping (Consultation Response), alongside a draft revised statutory Code of Practice on Fair and Transparent Distribution of Tips (Draft Revised Code). In this article, we set out the current position, the key upcoming reforms and the practical steps employers can take to prepare for the reforms.

The Current Position

The Tips Act 2023, along with the current Code of Practice, which both came into force on 1 October 2024, introduced a clear statutory framework setting on the obligations of employers with regards to tips:

  • No deductions other than those required by law. Employers must ensure that all qualifying tips are passed on to workers in full. Employers may not make deductions from tips, whether for administrative costs or otherwise, other than those required by law (e.g. tax and National Insurance).
  • Fair allocation. Tips must be allocated fairly among workers at that particular place of business. What constitutes “fair” will depend on the circumstances of the particular business, but the legislation makes clear that employers must not distribute tips in a manner that is arbitrary or unreasonable.
  • Agency workers. The obligation to allocate tips fairly extends to agency workers, meaning employers must consider their inclusion when distributing qualifying tips. Self-employed contractors are not entitled to tips.
  • Written tipping policy and records. Where tips are paid on more than an occasional and exceptional basis, employers are required to have a written tipping policy setting out how tips are dealt with in the business and maintain tipping records for a period of three years, which workers have the right to request access to.

Non-compliance can result in claims being brought in the employment tribunal.

What Is Changing?

There are several key upcoming changes to the existing tipping framework which are expected to come into effect in October 2026.

  • A new duty to consult workers

A key development introduced by the ERA 2025 is the introduction of a statutory obligation to consult workers on tipping policies. Employers will be expected to consult before producing the first written tipping policy for a place of business, and when reviewing it thereafter. Consultation should be with recognised trade union representatives or other worker representatives where they exist, or directly with affected workers where they do not.

The Draft Revised Code makes clear that consultation should be genuine, considered and carried out in good faith, rather than treated as a tick-box exercise. Employers will not necessarily have to accept every suggestion, and workers are not expected to have veto rights, but employers should be able to show that they engaged properly and reached a fair and transparent outcome.

This represents a meaningful shift: under the current legislation, there is no formal requirement to involve workers in how tips are allocated, even though best practice has always encouraged it.

  • Written tipping policies must be reviewed at least every three years

ERA 2025 also introduces a requirement that written tipping policies must be reviewed at least every three years. The same consultation requirements will apply during those reviews.

In practice, employers should not wait three years if tipping arrangements become outdated sooner, for example because the business changes its service model, introduces a new digital tipping platform, starts using a troncmaster, expands to multiple sites or receives repeated worker queries about fairness.

  • Clear written record of the consultation process

Employers should keep a clear written record of the consultation process, including what information was shared, who was consulted, what feedback was received, how that feedback was considered and what outcome was reached.  A written, anonymised summary of the views expressed in the consultation must also be made available to workers at the place of business.  

  • Greater emphasis on workplace-specific fairness

The Government has recognised that there is no single fair model for distributing tips. A distribution system that works for a small independent restaurant may not work for a national hotel group, a salon chain, a delivery platform or a multi-site leisure business.

The Draft Revised Code preserves flexibility, but employers should be able to explain their chosen approach. Relevant factors may include role, hours worked, level of responsibility, individual or team performance, length of service and customer intention. Employers should also consider how the scheme operates in practice and avoid arrangements that could unlawfully disadvantage particular groups.

  • Data protection considerations

The Draft Revised Code stresses that data protection should not be used as a blanket reason for withholding relevant information; employers can usually explain how a tipping system operates without disclosing other workers’ personal data.

  • Customer-facing transparency is encouraged, but not mandatory

The Government’s Consultation Response notes customer interest in understanding how tips are distributed, but confirms that employers are not legally required to display their tipping policy publicly. Even so, a short statement on menus, bills, websites or booking platforms can help manage customer expectations, particularly where service charges are added automatically.

Practical Steps for Employers

Although the ERA 2025 is now law, commencement regulations are required to bring the new tipping provisions and the Draft Revised Code into effect. Employers should use the intervening period before the new Code comes into effect to prepare. We recommend that employers take the following steps:

  1. Audit existing tipping practices. Review how tips are currently collected, allocated, and distributed in your business. Ensure that qualifying tips are being passed on in full and that no impermissible deductions are being made. Where an independent troncmaster is used, employers should still check that the arrangements are lawful.  
  2. Review your tipping policy. If you are required to have a written tipping policy, check that it is up to date, clearly drafted, and accurately reflects your current practices. Consider whether your allocation methodology can be justified as fair and reasonable.
  3. Consider agency workers. Ensure your tipping arrangements account for agency workers where applicable, and that they are being included fairly in tip allocations.
  4. Prepare for worker consultation. Begin thinking about how and when you will consult workers on your tipping policy once the new requirements come into force. Consider who will need to be consulted, whether any existing worker forums or representatives can be used, and what consultation methods will be most appropriate for your workforce. Implement measures to review and consult on your tipping policy at least every three years.
  5. Update record-keeping practices. Review your tipping records to ensure they are accurate, comprehensive, and retained for the requisite three-year period. Update record-keeping practices to include written records of any consultation processes.
  6. Monitor developments. Keep a close eye on the finalisation of the Draft Revised Code and the commencement dates for the ERA 2025 tipping provisions, so that you can implement any necessary changes promptly.

If you would like advice on reviewing your tipping arrangements or preparing for the new consultation requirements, please  get in touch with our employment team.