The Employment (Allocation of Tips) Act 2023, also known as the Tips Act, came into force on 1 October 2024. This new tipping legislation will revolutionise tip-heavy industries, like the hospitality sector, ensuring workers receive the full value of their efforts.
Below, we take a look at exactly how these changes have evolved workers’ rights. We will examine the key changes employers must consider and explore best practices to avoid substantial repercussions.
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The Tips Act – What are the New Rules on Tipping?
Since the beginning of October, the Tips Act has impacted how employers, like those in the hospitality sector, handle their tipping policy. Under the new tipping rules, workers are guaranteed 100% of their tips, barring lawful tax deductions.
This is great news for workers—as highlighted by Simon Bocca, founder of the cloud-based payroll software PayCaptain, who said, “Lots of workers in the hospitality sector rely on tips to supplement their pay – before this law came into effect, many were powerless to do anything…”
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Because of this update, employers must distribute these earnings fairly, transparently, and in line with a new statutory Code of Practice. According to the Department for Business and Trade, this will significantly boost earrings, with approximately £200 million annually being returned to workers.
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However, the benefits don’t end there. Should workers have any concerns about the tips they receive, they can now request tipping records to foster accountability. What’s more, this law extends to agency workers, and if an individual believes their rights have been breached, they can seek recourse through the employment tribunal.
Is Tipping Mandatory in the UK?
While the Tips Act ensures workers receive 100% of the tips they earn, it doesn’t obligate customers to make one. As such, whether or not a customer decides to provide a tip will remain at their discretion.
Despite tips not being mandatory, this tipping legislation marks a bold change – likely influenced by concerns regarding transparency and fairness. It’s previously been reported that some employers deducted card processing fees or withheld portions of tips from their staff. There were also claims that other employers used tips to cover business costs or to satisfy National Minimum Wage (NMW) requirements. Such practices often resulted in mistrust and dissatisfaction among the workforce, and these enhanced workers’ rights look to change this.
Passionate about improving employee financial wellbeing, Mr Bocca adds, “The new legislation requires full transparency, which can then be shown on their payslip alongside all other pay elements to give the employees confidence they are being paid fairly and correctly, building trust and enabling them to feel in control of their pay, which leads to better financial wellbeing”.
Can Employers Withold Tips in the UK?
Regardless of the tipping policy an employer previously had, they can no longer withhold a worker’s tips since the implementation of the Tips Act. The new tipping rules obligate employers to distribute tips fairly amongst workers, per the new Code of Practice, and ensure their policy is readily available.
Mastering the Tips Act: Essential Employer Responsibilities
Following the changes introduced by the tipping legislation, it’s crucial for employers to understand and comply with their new obligations. The key amendments employers need to prioritise under the Tips Act include:
- No Deductions from Tips – Unless to satisfy lawful tax requirements, employers are legally unable to make deductions from tips, service charges or gratuities.
- Fair and Transparent Allocation – Employers must establish a readily available tipping policy that utilises objective criteria to distribute tips. TiPJAR’s CCO, Dan Hawkie, explained, “A consultation process with staff is key – this should cover what the team deem to be fair, and include a fair representation of the business.”
- Timely Distribution of Tips – Once tips have been received, they must be distributed in a timely manner. The new tipping rules stipulate that distribution must occur no later than the end of the following month after receipt.
- Record-Keeping Obligations – The enhanced workers’ rights now obligate employers to collate detailed records of tips received and their distribution. Employers are required to retain these records for a minimum of three years, during which workers have the right to request access to them once within any three-month period.
- Equality Across Employment Types – Regardless of whether individuals are permanent staff members or agency workers, employers must apply their tipping policies consistently.
Staying Compliant: Employer Best Practices
Whether an employer is in the hospitality sector, retail, or another tip-heavy industry, being on top of the Tips Act is essential. Organisations must begin by developing a thorough written policy that clearly outlines and communicates how tips are allocated, stored, and distributed. Employers must also create strong record-keeping systems that meet the new legal requirements and update these regularly for better compliance.
Mr Hawkie advises updating employee contracts as it “is a critical step in ensuring compliance with the new tipping legislation.” He explained the need to review and update contracts in line with the new laws, adding, “It’s also really crucial to ensure compliance with minimum and living wage laws, which prohibit salaries from being topped up with tips.”
Staff Training Reduces Risk of Grievances
However, to ensure newly created policies are applied correctly on a daily basis, employers mustn’t forget to train senior staff. Knowledge helps those in charge handle queries effectively, significantly reducing the risk of errors and grievances. This is particularly important since failure to adhere to the new tipping legislation exposes employers to serious risks.
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For starters, if the Tips Act is breached, workers may file employment tribunal claims. If the individual succeeds, this could potentially lead to financial penalties, compensation orders, or administrative sanctions. Such legal implications can significantly hurt a company’s finances and hinder its growth.
But that’s not all; Non-compliance not only results in legal repercussions but can also harm an organisation’s reputation. Unfair tipping practices can lead to negative publicity, which may impact how customers view the business and damage staff trust. Staff morale could be affected, turnover could be increased and attracting new talent to the business could become more difficult.
As such, by adopting clear policies, training leaders, and fostering transparency, employers can avoid these pitfalls, protect their reputation, and build a motivated workforce committed to delivering exceptional service.
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