The tipping law: employer duties to pass on tips

Q: How does this work in practice?

Illustration only. A café company runs two sites. In July, site A takes £1,800 of card tips and site B takes £600. The card provider charges 1.5%. The employer must share the full £1,800 among site A workers and the full £600 among site B workers, absorbing the £36 in fees itself. If its policy allocates by hours worked, an agency barista who covered 40 hours at site A is included on the same basis as direct staff. Everything must be paid by 31 August, and the July record must show the totals and each allocation.

Since 1 October 2024 employers in England, Wales and Scotland must pass on every qualifying tip, gratuity and service charge to their workers in full, share them fairly and pay them out by the end of the month after the customer paid. Where tips are more than occasional, the employer also needs a written tipping policy and a three year record that workers can ask to see. The tax rules are unchanged, but the way a tronc is run affects both the legal duties and National Insurance.

Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.

See my price in 2 questions How the cover works Accountant? Offer cover to your clients or call 01795 841 310

This guide covers the employment law duties. For how tips are taxed and when National Insurance is due, see our guide to tips, gratuities and tronc schemes.

Which tips does the law cover?

The Employment (Allocation of Tips) Act 2023 inserted a new Part 2B into the Employment Rights Act 1996. Section 27C defines qualifying tips, gratuities and service charges as:

employer received tips: amounts received by the employer or an associated company, or by a payment provider under an arrangement with the employer, which covers card and app payments into the business
worker received tips under employer control: tips a worker receives where the employer exercises control or significant influence over how they are allocated, for example by telling staff how to split cash or collecting cash at the end of a shift
connected tips: other worker received tips at the same place of business paid later in the same week, or in the following week, as a controlled tip

The amount is what the customer actually paid, and section 27C(6) says any deductions are disregarded, so card processing fees cannot be netted off before tips are shared. Any element representing VAT is excluded, and vouchers or tokens of a fixed monetary value count. The statutory code of practice confirms that cash a worker keeps with no employer involvement, and app tips paid straight to a worker that bypass the employer, are outside the law. It applies to workers, including agency workers, but not to the self employed.

What does allocating tips fairly mean?

Section 27D requires the employer to ensure that the total qualifying tips at each place of business are allocated fairly between the workers at that place, having regard to the code of practice. The code says fair does not have to mean equal, but the employer should use a clear and objective set of factors. Its illustrative list is:

type of role, such as front of house and kitchen
basic pay and how workers are engaged
hours worked while the tips were received
individual or team performance
seniority or level of responsibility
length of service
customer intention

The code warns employers to avoid direct and indirect discrimination when choosing and applying factors, to consult workers to seek broad agreement, to state the factors in the tipping policy and to review the approach regularly.

Tips stay with the place of business where they are paid. The government’s non statutory guidance gives the example of a pub chain pooling tips from a busy city branch with a quiet seaside branch, which is not permitted, while pooling across bars within one holiday camp is likely to be fine. Section 27E lets tips received at a non public site, such as a remote customer service centre, be shared with workers at the public sites. The guidance also suggests that staff who do not provide service to customers, such as a head office marketing manager, are unlikely to qualify for a share.

Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.

From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.

See my price in 2 questions or call 01795 841 310.

★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews

When must tips be paid out?

Section 27G sets the deadline: allocation and payment must happen no later than the end of the month after the month in which the customer paid. A tip left on 23 June must reach the worker by 31 July.

For agency workers, section 27H treats the hirer as the employer for these purposes. The hirer may pay the agency within the same deadline, and the agency must then pay the worker by the end of the month after the month it received the money. Neither may make unauthorised deductions from the tips.

What must the written tipping policy say?

Section 27I requires a written policy for each place of business where qualifying tips are paid on more than an occasional and exceptional basis. The code gives the example of a clothes shop that receives tips a few times a year as one that would not need a policy. The policy must state:

whether the employer requires or encourages customers to pay tips, gratuities or service charges
how the employer ensures all qualifying tips are dealt with under the law, including how they are allocated between workers

The policy, and every amended version, must be made available to all workers at the site. The code adds that it should be in plain language, available in an accessible format on request, and reach agency workers as easily as direct staff. Where a business would need a policy only if cash tips were within its control, section 27I(5) requires it to tell workers that it does not need one and why.

Section 14 of the Employment Rights Act 2025 will add duties to consult workers or their representatives before producing the first policy, to review the policy at least once every three years with consultation, and to share an anonymised summary of the views expressed. Legislation.gov.uk shows these changes as not yet in force. The government consulted on a draft revised code between 19 August and 29 September 2026 and says employers should follow the existing code for now.

What records must be kept and what can workers ask to see?

Section 27J requires a record of how every qualifying tip at the site has been dealt with, kept for three years from the date the tip was paid. It must show the total qualifying tips at the place of business, the amount the employer allocated to workers and the amount passed to an independent tronc.

A worker can make a written request for the records for a period of one month or several consecutive months, starting no more than three years before the request and ending before it, provided they worked for the employer in each of those months. Only one request is allowed in any three month period. The employer must respond within four weeks of receiving it, showing the site total and the worker’s own allocation, but not other workers’ individual amounts.

How does a tronc fit with these duties?

Section 27F treats the employer as having allocated tips fairly if it arranges for an independent tronc operator to do the allocation and it is fair to make that arrangement. To count as independent, the operator must be someone the employer reasonably considers to be acting independently, must not make unauthorised deductions, and the payments must meet the National Insurance disregard in paragraph 5(3) of Part 10 of Schedule 3 to the Social Security (Contributions) Regulations 2001, which applies where the employer does not allocate the payment directly or indirectly.

So the independence that keeps tronc payments free of National Insurance is built into the employment law test. The code says the employer must set a fair framework for the tronc and, if it later learns the tronc is operating unfairly, must act by instructing, replacing or ending it. PAYE still applies to tronc payments, and tips never count towards National Minimum Wage pay.

Two further rules close loopholes. Under section 27V, contractual tip payments and statutory allocations for the same period count towards each other. Under section 27W, any term requiring a worker to pay money back, or cutting their wages, by reference to tips they receive is void.

What happens if an employer gets it wrong?

A worker can complain to an employment tribunal about unfair allocation or late payment within twelve months of the failure, or of the last failure in a series (section 27K). The tribunal can order the employer to revise the allocation and pay workers, including workers who did not bring the claim, and award compensation of up to £5,366 for financial loss (section 27M, at the figure applying from 6 April 2026). Complaints about the policy or records must be brought within six months for failures from 1 October 2026 (section 27N), with the same compensation cap (section 27O). Under section 27U, if an allocation is revised downwards the employer cannot recover the difference from the worker.

How does this work in practice?

Illustration only. A café company runs two sites. In July, site A takes £1,800 of card tips and site B takes £600. The card provider charges 1.5%. The employer must share the full £1,800 among site A workers and the full £600 among site B workers, absorbing the £36 in fees itself. If its policy allocates by hours worked, an agency barista who covered 40 hours at site A is included on the same basis as direct staff. Everything must be paid by 31 August, and the July record must show the totals and each allocation.

What mistakes do employers make?

Deducting card fees or a share for the business before distributing tips.
Pooling tips across separate branches.
Leaving agency workers out of the allocation because of how they are engaged.
Having no written policy, or one that does not explain the allocation factors.
Calling a tronc independent while managers direct who gets what, which risks both the employment law defence and the National Insurance treatment in an HMRC employer compliance check.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.