Hospitality and Leisure Focus: Distribution of tips and gratuities

As we move into the new legislative and tax year, there are a raft of recent and impending changes which will have significant impact on employers in the Hospitality and Leisure sector.

The Employment Group at DLA Piper works with a huge range of employers in this sector, advising on all aspects of the employment relationship. Over the coming months, specialist lawyers within the Employment Group who work regularly with clients in this sector will be examining the key trends and topics that are of particular relevance to employers in the Hospitality and Leisure sector.

Distribution of tips and gratuities

The first topic in this series is the impending change in legislation in respect of the distribution of tips and gratuities, which will drastically change how a number of employers operate in this area. The Employment (Allocation of Tips) Act 2023 passed through Parliament last year and seeks to (a) introduce “measures to ensure tips are distributed fairly”; and (b) to ensure that it is “transparent to workers how tips in a workplace are treated[1].

The Act requires employers to pass tips received from customers onto workers (including agency workers) in full, with very limited exceptions. It also:

  • requires employers to have a tipping policy in place and provide this to their workers (including agency workers);
  • requires employers to keep records on the distribution of tips; and
  • creates a new right for workers (including agency workers) to request a copy of their tipping record (and enables such workers to bring a claim in the Employment Tribunal in order to enforce their rights in this regard).

A draft Code of Practice was published on 15 December 2023, and consultation closed on 22 February 2024. A response to consultation and revised Code of Practice was published on 22 April 2024. The Government has now announced that the Act will come into force on 1 October 2024, rather than 1 July 2024 as previously proposed. Further non-statutory guidance will be published “in due course” to accompany the Code of Practice[2].

Qualifying Tips

The Code only applies to ‘qualifying tips’. It states that the determining factor in whether a tip is a “qualifying tip” for the purpose of the Act and the Code is whether an employer receives or exercises control or significant influence over the distribution of tips. This is an important first consideration for employers in terms of what steps they take post-1 October. Employers will firstly need to determine whether the approach currently taken means that tips and gratuities will be qualifying tips for the purposes of the Act and the Code and then if so, determine what steps need to be taken to ensure compliance.

At present, many employers tend to either collate tips received from customers and distribute amongst staff, using various factors to determine what proportion of the ‘pot’ each worker receives (often following a reduction of the ‘pot’ to cover various administration costs), or use a tronc system, whereby all tips are paid into a tronc and distributed by an independent troncmaster (thereby saving on any National Insurance contributions that would otherwise be due on such tips).

Return to Tronc?

Using a tronc has been less common in recent years due to the lack of control employers have been able to have over the distribution of the tips. However, in light of the definition of qualifying tips for the purposes of the Act and the Code, we anticipate more employers will be exploring the option of a tronc again.

The Act confirms that an employer can use a tronc and the Code confirms that, as long as the employer has provided instructions or a framework for the tronc operator which are in line with principles of fairness, and the employer has a reasonable belief that the tronc is operating independently and fairly, the employer will be regarded as having complied with the Code (although there is an ongoing obligation on employers to address any unfair or improper allocation of tips, if they are aware of such a matter).

Policies and Record Keeping

The Code also provides further information around the requirements for a written policy, which must be provided to workers (and in an accessible format for any worker with a disability).

Tipping records must also be stored, processed and disposed of in line with data protection legislation, and workers have the right to make one written request in every three-month period to view the tipping record for a period date back up to three years (provided they have worked for the employer for the full duration of the requested period).

Employers are also required to ensure they have fair processes in place for resolving issues and responding to queries from workers who have not received the share of tips that they expected to.

Consequences of Non-Compliance

If an Employment Tribunal finds that an employer has not complied with the requirements of the Act and/or the Code of Practice, it can make a public declaration to that effect and can also require an employer to revise its previous allocation of tips, make a non-binding recommendation on a previous allocation of tips or order the employer to pay compensation to the worker(s) in question.

Next Steps

Whilst we are of course still awaiting the accompanying non-statutory guidance (which will give further information about the Employment Tribunal claims available), employers would be well advised to apply their minds sooner rather than later to their preferred method of distributing tips post-1 October 2024.

Employers will need to consider whether the use of an independent tronc would be preferable in light of this new legislation, or whether they would prefer to retain greater control of the distribution of tips.

Employers will need to ensure that they have clear records of the tips received and how they are distributed, as well as ensure that they have a policy in place that complies with the requirements of the Code of Practice.

If you have any questions on the upcoming changes in the law, or require assistance in drafting a policy and/or any internal guidance addressing the distribution of tips and gratuities, please do not hesitate to contact

[1] Consultation document on the draft Code of Practice supporting measures in the Employment (Allocation of Tips) Act 2023.

[2] Draft Code of Practice on fair and transparent distribution of tips.

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