The Employment (Allocation of Tips) Act 2023 – practical impact since implementation

The Employment (Allocation of Tips) Act 2023 (the Tips Act), in force from 1 October 2024, requires employers to pass on tips, gratuities and service charges in full and to allocate them fairly and transparently. Aside from deductions required by law (such as income tax and NICs), employers must not make deductions or charge administrative fees. The legislation targets exploitative practices and applies to workers generally, including agency workers.

In this article, we summarise the key provisions of the Tips Act and look at the practical implications since its implementation.

Key features and enforcement

The Tips Act imposes a duty on employers to ensure that “qualifying tips, gratuities and services charges” over which they exercise control or significant influence are fairly allocated and paid to workers no later than the end of the month following the month of receipt. Employers may use an independent tronc to allocate tips where this is fair; the independence and operation of any tronc are central to compliance.

To reinforce protection, qualifying tips are expressly treated as “wages” under the Employment Rights Act 1996, bringing them within the unlawful deductions regime. Workers cannot contract out of these statutory rights, and any term seeking to waive them, or to require reimbursement linked to tip allocation, is void.

Where obligations concerning allocation or payment are breached, workers may bring tribunal claims within 12 months. Employers who regularly pay tips must maintain a written tipping policy and keep allocation and payment records; failures can be challenged within three months, with tribunals able to order compliance and award up to £5,000 for financial loss. A statutory Code of Practice on fair and transparent distribution (the Code), in force from 1 October 2024, must be taken into account by tribunals and should guide employers’ policies and practices.

Tronc arrangements and tax interaction

The Code permits use of independent tronc systems provided the employer’s framework and reasonable understanding align with the principles of fairness. If an employer becomes aware of unfair allocations by an independent troncmaster, it must act to avoid non‑compliance. HMRC guidance indicates independence is preserved if the employer does not, directly or indirectly, determine individual allocations. That suggests monitoring for fairness without directing outcomes should not jeopardise NIC exemptions, though careful governance is needed.

Sector practice reflects these tensions. Tronc structures can deliver NIC savings if genuinely independent, but their interaction with contractual entitlements, holiday pay and PAYE remains complex.

Practical impact in F&B and hospitality

After just over one year since coming into force, the regime has proved to be broadly positive for workers and workplace culture, improving trust and aligning customer intent with staff outcomes. For bars, restaurants, cafés and hotels, clarity should reduce disputes and support retention. However, there are significant operational implications and an increased administrative burden for businesses.

Employers who receive tips more than occasionally must implement and maintain a written policy, consult staff as appropriate, and align contracts and handbooks with the statutory position and any tronc arrangements. Ongoing reviews are advisable to ensure fairness as roles and service models evolve. Record‑keeping is essential: employers must retain allocation and payment records for three years and respond to workers’ record requests within four weeks. Finance and payroll functions must schedule allocations to meet the statutory payment timetable, reconcile multiple tip sources and integrate tronc processes where relevant. The proliferation of tipping channels—cash, card and digital platforms—often necessitates systems capable of capturing tips at source, calculating fair allocations and integrating with payroll, which can be particularly costly at scale.

The risk of tribunal claims increases if allocation, payment, policy or record‑keeping obligations are missed. Because tribunals must consider the Code, employers should expect scrutiny of distribution criteria, tronc independence and the consistency of application across sites. Remedies include compliance orders, compensation for financial loss in policy/record cases up to £5,000 and reputational harm.

Case signal and key trends

In Palanki v The Big Table Group, a Las Iguanas employee successfully argued that tronc payments were normal remuneration intrinsically linked to work and therefore payable during holiday. Features such as the absence of a separate troncmaster bank account and PAYE scheme, and combined presentation of wages and tronc on payslips, supported the conclusion that the tronc lacked genuine independence. Although a first‑instance decision, it heightens risk where tronc structures are not truly independent and underscores the need to reassess holiday pay calculations, backpay exposure and contractual wording. What is clear from this judgment is that treating tips as peripheral income is no longer sufficient. There are also wider implications for businesses where payments are only earned when individuals are working, for example commission and bonuses.

Ahead of the Tips Act taking effect, London restaurant chain Ping Pong trialled a new approach by removing the 12.5% optional service charge and blocking card tips. Instead, it proposed an optional 15% “brand fee” to fund brand costs and franchise fees, and planned a 19% wage increase to offset lost tips. While the Tips Act aims to address a significant issue in hospitality and retail, operational realities may limit its effectiveness, and Ping Pong’s creative solution (accused, at the time, of attempting to circumvent the upcoming legislation) signalled broader shifts as businesses looked to mitigate its impact. Others may adopt similar fees or raise menu prices, and the sector-wide effects will only become clear over time.

What this means for different operators

For small operators with modest tip volumes, compliance may be manageable with a clear policy, timely payments and basic record‑keeping. Larger groups with complex staffing and high tip volumes face heavier administrative and systems burdens to ensure accurate capture, fair allocation, timely payment and robust records. For all businesses, aligning policies with the Code, ensuring tronc independence where used, investing in proportionate systems and training, and maintaining clear records will mitigate legal risk while preserving the morale and retention benefits that fair tipping delivers.