If your business receives tips, gratuities or service charges, you should consider reviewing your tipping policies and allocation practices now. The government has re-issued a draft revised statutory Code of Practice (the Code) on the fair and transparent distribution of tips and launched a consultation on the proposed changes.
The publication of the Code follows the withdrawal of the earlier draft on 13 July 2026 to allow for a full consultation. The consultation will run until 29 September 2026.
Employment Rights Act 2025 changes
The Code reflects the changes being introduced by the Employment Rights Act 2025 (ERA 2025), which requires employers to consult with a recognised trade union or employee representatives when first introducing a policy on the allocation of tips. It also requires a review of the policy every three years.
What is the Tips Act?
Since 1 October 2024, the Employment (Allocation of Tips) Act 2023 (Tips Act) has required employers to pass tips, gratuities and service charges to workers in full, and allocate them fairly and transparently. If tips are received at a place of business more than occasionally (not just now and then), you must also have a written tipping policy explaining how the allocation works. In practice, this means most hospitality businesses, salons and similar customer-facing operations will need a written policy. If you are unsure whether your business receives tips more than occasionally, err on the side of putting a policy in place.
Which payments fall within the Tips Act’s scope?
The Code remains substantially the same as the withdrawn version, but it now clarifies that certain forms of tips fall outside the scope of the Tips Act. For example, direct app-based tipping is outside the Tips Act’s scope where a customer uses an app or similar method to tip staff directly, without you receiving or controlling the money. A charge with a genuine purpose other than rewarding workers for service also falls outside the Tips Act’s scope.
However, you cannot avoid the requirements of the Tips Act by relabelling a tip. What matters is the substance of the payment. If you are uncertain whether a charge qualifies as a tip, document your reasoning and consider taking legal advice before treating it as outside scope.
Ensuring a fair allocation of tips
The Code contains more detail on the factors you should consider to ensure a fair allocation of tips:
- including workers directly involved in providing service at the relevant place of business, regardless of job title;
- avoiding fixed, minimum or guaranteed sums for named individuals or groups as this risks making tips less predictable for everyone else;
- considering each worker’s role and how involved they are in providing the service, such as front-of-house compared with backroom work; and
- assessing the scheme as a whole and in its wider context.
Consultation on a tipping policy
The Code requires that you carry out a genuine and proportionate consultation in good faith, giving workers sufficient time and information to understand and respond to proposals. What constitutes a proportionate consultation will depend on the size, complexity and nature of your business. Consider setting a consultation window of at least two weeks and offer multiple ways for workers to respond, such as an anonymous online survey alongside in-person team meetings. You need not accept every suggestion, provided the consultation meets the fairness and transparency requirements.
You should consider the views of all affected workers, including minority groups and those who may face barriers to participation, rather than relying solely on the largest or most vocal group, or a simple majority vote. You must keep a written record of the consultation, views expressed and outcomes, and make an anonymised summary available to all workers.
Key takeaways
- Take stock of your current approach: Use the Code as an opportunity to assess whether your existing approach to tips remains appropriate and where you may need to update it.
- Confirm which rules apply to your business: Establish whether the frequency with which you receive tips means that you need to have a written tipping policy in place.
- Focus on what workers actually do: Consider employees’ involvement in delivering the relevant service rather than relying solely on job titles when deciding how to share tips.
- Test your arrangements for fairness: Consider whether any guaranteed or predetermined shares could disadvantage other workers or undermine the overall fairness of the allocation.
- Give workers a genuine voice: Build meaningful engagement into any review of your tipping arrangements, make it easy for different groups of workers to contribute and document how their feedback has informed the outcome.
The government plans to bring the ERA 2025 changes and the Code into force by the end of 2026. That means now is the ideal time to review your arrangements, identify any gaps and share your views on the proposed changes.
