Since 1 October 2024, employers must pass on 100% of tips, gratuities, and service charges with no deduction for card processing fees or admin costs — and keep a written policy and three years of records to prove it.
What Changed on 1 October 2024
The Employment (Allocation of Tips) Act 2023 received Royal Assent on 2 May 2023, and both the Act and its accompanying statutory Code of Practice on Fair and Transparent Distribution of Tips came into force on 1 October 2024. The Act inserts new provisions into the Employment Rights Act 1996 requiring that all qualifying tips, gratuities, and service charges paid by customers be allocated to workers in full — without any deduction, including deductions for card payment processing costs or general administrative overhead. This directly targets a longstanding practice where some hospitality employers retained a percentage of card-paid service charges to cover processing fees before the remainder reached staff.
The Act and Code apply to England, Scotland, and Wales. Northern Ireland is not currently covered, though the Department for the Economy there has proposed similar rules via separate legislation.
Fair Allocation, Not Just Full Payment
The requirement isn't only that 100% of tips reach staff — it's that the allocation between staff must also be "fair," a term the Code of Practice elaborates on without prescribing a single rigid formula. Employers have flexibility in how they structure allocation (for example, weighting by hours worked, role, or seniority), but the process and any criteria used must be transparent and consistently applied. Tips earned at one location of a multi-site business must stay with workers at that location — they cannot be pooled across separate sites.
Written Policy and Three-Year Recordkeeping
If tips are paid on more than an occasional and exceptional basis, the employer must maintain a written policy explaining how tips are dealt with, and must keep records of tip allocation for a minimum of three years from the date each tip was paid. Workers are also entitled to request specific information about their employer's tipping record. Any attempt to have a worker waive these rights is not legally effective — the protections cannot be contracted away.
Where a Tronc System Fits
A tronc is a common method for distributing tips: customer tips are pooled into a collective fund, and a designated troncmaster — either an internal staff member or an external professional — determines how the pool is distributed among staff. The Code of Practice explicitly permits tronc arrangements, and a properly independent tronc, run separately from the employer's direct control, can also qualify for exemption from employer and employee National Insurance Contributions on the amounts distributed — a genuine financial advantage on top of compliance, though the Code itself doesn't alter existing tax and National Insurance rules, so this needs coordinating with your payroll or accountant.
Practical Compliance Steps
- Stop any deduction from tips for card processing fees or admin costs immediately — this is the single most common area of continued non-compliance.
- Put your tips policy in writing and inform all affected workers before any change takes effect.
- Set up recordkeeping capable of holding three years of tip allocation data, retrievable if a worker requests it.
- If using a tronc, confirm with your troncmaster or payroll provider that the arrangement is genuinely independent enough to qualify for the National Insurance exemption.
- Train supervisors handling tip administration on the new rules, since day-to-day handling is often where informal old habits persist longest.
Our Restaurant Policies Generator can produce a written tips and service charge policy aligned with the Code of Practice.
Related Kibbo Tools
Sources
- UK Government — Distributing tips fairly: statutory code of practice. gov.uk
- Legislation.gov.uk — Employment (Allocation of Tips) Act 2023. legislation.gov.uk