Don’t Fall Foul Of The Tipping Act

Hospitality and service industry businesses could face fines and the prospect of an employment tribunal if they don’t comply with the Tipping Act, two experts have warned.

The Employment (Allocation of Tips) Act 2023 rules that employers must pass on all tips, gratuities and service charges to workers without deductions.

This Act impacts more than two million workers including those who work in restaurants, bars, retail shops, hairdressers, taxi firms, beauty parlours, and many more.

Specialists at UK top 10 accountancy firm Azets, have issued the warning prior to the festive season when more tipping is likely in the busiest period for the hospitality industry.

It also comes ahead of proposed changes due to come into force next year which will tighten legislation even further.

H-J Dobbie, Head of HR Consultancy, and Julie Gunnell, Associate Director of Growth Payroll at Azets, the UK’s specialist business advisor to SMEs, have combined to offer guidance to employers.

Julie Gunnell said: “This Act has now been law for a year and employers are obliged to discharge their responsibilities fairly and pass on 100 per cent of all tips to hard-working staff who earned then."

“If not, staff can hold bosses fully accountable by bringing a claim to an employment tribunal, and this could lead the minority of businesses who continue unacceptable tipping practices being made to pay fines or compensation.”

Looking ahead to 2026, the Government has confirmed measures to enhance current tips laws will come into effect from October 2026 if the Employment Rights Bill becomes law. The proposed changes are:

• Employers will be required to consult with workers or their representatives before creating a tipping policy, which in reality means that most employers will have to revisit their current tipping policy.

• Employers will be required to update their tipping policy every three years.

H-J Dobbie said: “We know that the vast majority of employers are fully supportive of the Tipping Act, not least because it properly rewards dedicated, deserving and often low paid staff, but also because it builds trust with customers who are more likely to tip if they can be sure of its ultimate destination."

“When it comes to the Tipping Act, employers should use a clear and objective set of factors to determine the allocation and distribution and ensure that they give due consideration to all workers involved in providing service to customers, including temporary, zero hour and agency workers to avoid discrimination, but not the genuinely self-employed."

“Record-keeping is also a requirement, and the employer must create a record of how every qualifying tip has been dealt with, detailing all qualifying tips received by the employer at the place of business, and the amount allocated to each worker. Records must be kept for a period of three years beginning with the date on which the qualifying tip was paid."

“Workers can make a written request to view their employer’s tipping record for a period dating back up to three years, provided they worked for the employer for the full duration of the requested period. They can only make one request in any three-month period, and an employer must provide its tipping record within four weeks.”

The Government has produced a Code of Practice on the Tipping Act which is available as a free resource. It provides overarching principles on what fairness is for the purposes of the law, the areas in which employers need to make decisions to comply with their duties, and how they should apply these principles in their specific places of business.

Key points include what are qualifying tips, employer-received tips, worker-received tips, digital tipping, ‘out-of-scope’ tipping, non-monetary tips, how a place of business is defined, the fair (not necessarily equal) allocation of tips, and timescales for the payment of tips.

For more information, visit the Government website here