To tip or not to tip...that is NOT the question

The Code of Practice 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. It does not, however, set out an exhaustive list of factors that employers should consider, so it is left for each individual employer to decide which specific principles best apply to their business.

Below, we explore some of the key terms discussed within the legislation, considerations for employers, and upcoming changes in 2026.

Employer-received and certain worker-received tips are classed as qualifying tips. If a worker receives and keeps a tip, with no employer control or involvement, the tip is out of scope and not a qualifying tip. Digital tipping, where a customer uses an app to directly tip members of staff bypassing the employer altogether, is also out of scope. If the method used for digital tipping means that the tip goes to the employer who then has control or significant influence over its allocation, it will become a qualifying tip.

This is an amount paid by a customer as a tip, gratuity, or service charge which is received by the employer or an associated person, or is received by a person under a payment arrangement made between the employer and that person. An employer may receive a tip paid by card or via another electronic method, for example through a mobile app. The employer is responsible for distributing this tip.

A worker-received tip is an amount paid by a customer as a tip, gratuity or service charge which is received upon its payment by a worker of the employer and is not then received by the employer or an associated person. A worker-received tip must be subject to employer control, i.e. when the employer or an associated person can exercise control or significant influence over the allocation of the tip. For example, if the employer collects cash tips received and then distributes them among staff.

This is where an amount is not paid in money and can only be considered a qualifying tip, gratuity, or service charge if it is paid in the form of a voucher, stamp, token or similar item, which is of a fixed monetary value and capable of being exchanged for money, goods or services. An example of a non-monetary tip could be a worker in a casino receiving a casino chip (which has a fixed value that can be exchanged) in place of a monetary tip paid by cash or card.

Any location where the activities of the employer’s business are carried out, whether on a permanent or temporary basis is viewed as the place of business within this legislation. An employer must ensure that the total amount of qualifying tips that is paid at, or otherwise attributable to, their place of business, is distributed fairly between its workers at that place of business.

The statutory Code of Practice must be followed when it comes to the fair allocation of tips as a failure to comply will be admissible in evidence in employment tribunal claims. Factors to consider include the type of role or work, i.e., distribution between front of house and back-room workers, basic pay (and how workers are engaged), individual and/or team performance, seniority or level of performance, length of time served with the employer, and customer intention.

It also has to be considered that the Code of Practice states that allocating and distributing tips fairly does not necessarily require employers to allocate the same proportion of tips to all workers. There may be legitimate reasons why an employer chooses to allocate different workers different proportions of tips. Employers should still 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.

This must be carried out by employers to seek broad agreement among the workforce that the system of allocation of tips is fair, reasonable and clear.

Employers should allocate qualifying tips to all workers in a fair and consistent manner taking account of permanent staff, directly recruited staff, agency workers and zero hours contract workers in the same location. The Code does not however apply to the genuinely self-employed.

Qualifying tips must be paid to employees no later than the end of the month following the month in which the tip was paid by the customer. Tips must be paid without deductions for admin or card fees, save for the usual PAYE (Pay As You Earn) deductions.

Where qualifying tips are paid at, or are otherwise attributable to, a place of business of an employer on more than an occasional and exceptional basis, written policies are required. The policy for a place of business must include whether the employer requires or encourages customers to pay tips and how the employer ensures that all qualifying tips paid at, or otherwise attributable to, the place of business are dealt with, including how the employer allocates tips between workers. The policy must be available to all workers of the employer. An employer cannot be said to have met their obligation to manage tips fairly and transparently if individual workers are not aware of their entitlements in line with the policy.

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

If an employer has failed to allocate tips fairly and/or failed to pay tips by the end of the month following the month in which the tip was paid by the customer, an employment tribunal claim can be brought to them.

When the Government published its roadmap for delivering the changes under the Employment Rights Bill, it confirmed measures to tighten current tips laws will come into effect from October 2026. From that date:

For more information on the Tipping Act, or to request help with any other HR-related matter, please get in touch with a member of our specialist HR Consultancy team via the form below.