The Employment (Allocation of Tips) Act 2023: A Guide

If you work in hospitality, hairdressing, taxis, or any service where customers tip, the law changed in your favour on 1 October 2024. And if you run or manage a venue, that same date brought new legal duties you need to meet. The Employment (Allocation of Tips) Act 2023 reshaped how tips are handled across Great Britain, and the rules are stricter than many people realise.

This guide walks through what the law actually says, in plain English, so workers know their rights and employers know their obligations. No jargon, no scare tactics. Just the facts and what to do about them.

What the law actually requires

The headline is simple: employers must pass on 100% of qualifying tips to workers, with no deductions except those required by law, such as tax. That means a business can no longer skim a percentage off card tips to cover "administration", card processing fees, or breakages. The full amount the customer intended to tip has to reach the people who earned it.

The Act covers both tips the employer receives or controls, whether that's cash handed over at the till and pooled, or, increasingly, card and digital tips that land in the business's account. If the employer has control over how a tip is distributed, the Act applies. The law calls these "qualifying tips". (Genuine cash tips a customer hands directly to a worker, which the worker simply keeps and the employer never touches, sit outside these rules.)

Why does this matter so much? For years, the gap between what customers thought they were tipping and what staff actually took home was a real problem. Service charges added to a bill could be retained by the business. Card tips could be quietly reduced. Many workers never knew how their tips were calculated, or whether they were being short-changed. The Act closes that gap by making the principle legally binding: the money is the worker's, not the employer's to keep or trim. Roughly two million workers across hospitality, leisure and services are estimated to benefit.

The law applies across England, Scotland and Wales. It was brought into force by a commencement regulation, and the date that matters is 1 October 2024.

Fair, transparent, and on time

Passing on the full amount isn't enough on its own. The Act inserts duties into the Employment Rights Act 1996 that govern how tips are shared. Under the new section 27D, an employer "must ensure that the total amount of the qualifying tips, gratuities and service charges... is allocated fairly between workers."

"Fairly" doesn't mean identical shares for everyone, but it does mean the method has to be defensible. A statutory Code of Practice on the fair and transparent distribution of tips sits alongside the Act, and employment tribunals must take it into account. Employers should think about factors such as role, hours worked, and contribution, and apply them consistently rather than at the manager's whim. The same approach should run across all comparable staff at a place of business, and using an outside tronc operator does not remove the duty to be fair.

Transparency runs alongside fairness. It isn't enough for a system to be fair in the manager's head; workers have to be able to see how it works. That principle threads through everything else in the Act, the written policy, the records, and a worker's right to ask questions, and it's the part that most changes the day-to-day relationship between staff and management.

There's also a deadline. Tips must be allocated and paid to workers no later than the end of the month following the month in which the customer paid the tip. A tip left in March, for example, has to reach the worker by the end of April. Holding tips back for weeks or paying them sporadically is no longer lawful.

The written tipping policy

Where tips are paid more than occasionally, employers must have a written tipping policy and make it available to all workers. Section 27I of the Employment Rights Act 1996 sets this out. The policy should explain whether the business accepts tips, how it allocates them between workers, and how it ensures that allocation is fair and transparent.

For workers, this is a genuinely useful right. You're entitled to see, in writing, exactly how the system works, so there's no more guessing whether a service charge actually reaches the floor or vanishes into head office.

Records and your right to ask

Transparency is backed by record-keeping. Employers must create and keep records of how qualifying tips have been dealt with, and hold those records for three years from the date the tip was paid.

Crucially, workers can ask to see them. Under section 27J, a worker can request the tipping records covering a period, and the employer must respond within four weeks, either providing the records or explaining why none are held. There are sensible limits: a worker can make one request in any three-month period, and can ask only about complete months within the previous three years. If an employer breaks these rules, workers can bring a claim to an employment tribunal.

What this means for workers

In short, you now have legal certainty that the tips customers leave for you are yours. You can:

• Expect 100% of qualifying tips, with nothing deducted except tax.
• Ask your employer for the written tipping policy and understand how shares are calculated.
• Request the underlying records if something doesn't add up, and get an answer within four weeks.
• Take a complaint to an employment tribunal if your employer ignores the rules.

If you're in a crew or team that pools tips, fairness and transparency aren't just nice-to-haves anymore. They're the legal baseline.

One thing to keep in mind: the law protects "workers", which is a broad category that covers most employees as well as many agency and zero-hours staff, not just those on permanent contracts. So if you pick up shifts, work seasonally, or come in through an agency, these rights are very likely to apply to you too. And you can't sign them away, an employer can't ask you to agree to deductions or to waive your entitlement to the tips you've earned.

What this means for venue owners and managers

Compliance is achievable, but it does require a system. You'll need a fair allocation method you can explain and defend, a written policy your staff can read, a payment process that hits the end-of-following-month deadline, and three years of clean records you can produce within four weeks of a request.

The biggest practical headache for many venues is the record-keeping and the deadline, especially when tips arrive across cash, card, and app-based channels and have to be reconciled, allocated, and paid promptly each month. Manual spreadsheets can work, but they're easy to get wrong and hard to produce in a hurry when a worker or a tribunal asks for them.

It's worth being honest about the stakes. Workers who believe the rules have been broken can bring a claim to an employment tribunal, and tribunals must have regard to the statutory Code of Practice when deciding what was fair. Getting the basics right, full pass-through, a method you can justify, a clear policy, prompt payment, and tidy records, is far cheaper and simpler than defending a claim later. Done well, it's also good for business: staff who trust the tipping system are more motivated, and customers increasingly care that the tip they leave actually reaches the person who served them.

Where digital tipping helps

This is where the way tips are collected starts to matter. A digital tipping platform can take a lot of the compliance burden off your plate, because the fairness, timing, and audit trail are built into how the money moves.

Tippidy is designed around a direct-to-worker model: tips can go straight to the individual who earned them, rather than pooling in a business account and waiting to be redistributed. That sidesteps the deductions problem entirely and removes any question of whether the full amount reached the worker.

For teams that do share tips, Tippidy's crew feature splits tips between members according to a clear, agreed arrangement, and every split is recorded in a transparent audit log. That gives both workers and managers a timestamped, itemised view of exactly how each tip was allocated, the kind of record the Act expects you to keep and be able to show on request.

Digital tipping won't write your tipping policy for you, and it doesn't replace taking proper advice on your specific setup. But by making allocation transparent and keeping an automatic, accurate record of where every penny went, it makes meeting the spirit and the letter of the new law considerably easier, for fairer pay on one side and far less paperwork on the other.

The bottom line

The Employment (Allocation of Tips) Act 2023 put a simple principle into law: tips belong to the workers who earn them, paid fully, fairly, transparently, and on time. For workers, that's a long-overdue protection. For employers, it's a clear standard to meet, and the right tools make meeting it straightforward rather than stressful.

Sources

Employment (Allocation of Tips) Act 2023 - legislation.gov.uk

The Employment (Allocation of Tips) Act 2023 (Commencement No. 2) Regulations 2024 (SI 2024/829) - legislation.gov.uk

Code of Practice on fair and transparent distribution of tips - GOV.UK

Tips at work - GOV.UK