Tipping Act 2024: What UK Restaurants Must Do Now

What do restaurant owners need to know right now?

Since 1 October 2024, the Employment (Allocation of Tips) Act 2023 makes it illegal for any UK employer to keep tips, gratuities, or service charges meant for staff. Every restaurant, pub, and café needs a written tipping policy, three years of records, and a fair allocation method. Tribunal claims are already being filed [opinion].

• Every business where workers receive tips must have a written tipping policy, available to all staff on request.
• Tipping records must be kept for three years. Workers can request a copy of their own record.
• Tronc systems remain legal, but they must meet the Act's requirements for fairness and transparency.
• Non-compliance exposes your business to employment tribunal claims. There is no grace period.

What actually changed on 1 October 2024?

The law now requires employers across England, Scotland, and Wales to pass 100 percent of qualifying tips, gratuities, and service charges to their workers. No deductions, no admin fees, no percentage retained by the house.

Before this date, ACAS had a voluntary Code of Practice, but it carried no legal weight. Some restaurants kept a portion of card tips as an "admin charge" [opinion]. Others diverted service charge revenue into general business funds.

According to the Department for Business and Trade's impact assessment, the legislation was expected to benefit around 2 million workers and redistribute approximately £200 million per year in tips previously retained by employers (BEIS Impact Assessment, 2023).

Who does the Tipping Act apply to?

The Act applies to every employer in England, Scotland, and Wales whose workers receive tips. That covers restaurants, pubs, cafés, bars, hotels, salons, barbers, takeaway outlets, and any other business where tipping happens.

Critically, the Act covers all workers, not just employees on permanent contracts. Zero-hours staff, agency workers, and casual workers are all included.

A 2023 report by UKHospitality found that 80 percent of hospitality businesses used some form of tip pooling or tronc arrangement. Under the new law, every one of those arrangements needs reviewing. If your system was set up before October 2024 and has not been updated, it may not meet the new standard [opinion].

What counts as a "qualifying tip" under the law?

Any tip, gratuity, or service charge that passes through the employer in any way is a qualifying tip. That includes card tips at the terminal, cash tips collected by the house, and mandatory or discretionary service charges on the bill. The only exception: tips paid directly from customer to worker with zero employer involvement.

Service charges deserve specific attention. Many UK restaurants add a discretionary service charge to every bill. Under the old regime, some businesses treated this as revenue. That is now explicitly prohibited. Every penny of service charge must reach staff, distributed according to your written policy.

The ACAS statutory Code of Practice on tips (published July 2024) provides worked examples of what qualifies and what does not. It is the document tribunals will reference when assessing complaints.

Do I need a written tipping policy?

Yes. The policy must explain how tips are collected, how they are allocated among workers, and the basis for the allocation method. It must be available to all staff on request.

Your written policy should cover at a minimum:

• How tips are collected (card terminal, cash, service charge)
• How tips are pooled or separated
• The allocation method (equal split, points-based, hours-worked, role-weighted, or a combination)
• How often tips are paid out
• Who is responsible for managing the tipping system
• How workers can query or challenge the allocation

Getting this documented now saves a painful conversation later. Early tribunal claims under the Act will look at the written policy first [opinion].

What is a tronc and does mine still work?

A tronc is a system for pooling and distributing tips, managed by an independent person called a tronc master, which sits outside the employer's payroll. Tronc systems remain entirely legal under the Tipping Act. The Act requires that however you distribute tips, the method must be fair, transparent, and documented.

If you already run a tronc, the key questions are:

• Is your tronc master genuinely independent? Under HMRC guidance, the tronc master must be someone other than the employer. A head waiter or senior team member typically qualifies. The business owner does not.
• Is the allocation formula documented in your written tipping policy?
• Are records being kept for three years?
• Can every worker request a copy of their own tipping record?

According to HMRC's Employment Income Manual (EIM75000), tips distributed through a genuine tronc managed by an independent tronc master are not subject to employer National Insurance contributions. For a restaurant processing £5,000 a month in tips, the employer NIC saving from a properly structured tronc could be in the region of £600 to £800 a year [estimate, based on 13.8% employer NIC rate applied to the tip pool].

What are the PAYE and National Insurance rules on tips?

All tips are taxable income for the worker. The tax treatment depends on who manages the distribution.

If the employer manages tipping directly through payroll, the tips count as earnings. The employer must deduct PAYE income tax and employee National Insurance at source, and also pay employer National Insurance contributions.

If an independent tronc master manages the distribution, the tronc master deducts PAYE income tax but employer National Insurance contributions do not apply. This is the main financial reason many restaurants prefer tronc systems.

Cash tips received directly by workers, never passing through the employer, are still taxable. The worker declares them through Self Assessment.

HMRC's Employment Income Manual sections EIM75000 to EIM75050 sets out the full framework.

How should I set up my allocation method?

The Act requires that tips are allocated "fairly" but does not prescribe a specific formula. The most common approaches in UK restaurants:

Equal split by hours worked. Total tip pool divided by total hours, paid proportionally. Simple, easy to explain, hard to challenge.

Points-based by role. Different roles receive different points per hour. A head chef might earn 1.2 points, a commis 0.8, a server 1.0, a kitchen porter 0.6. The pool divides by total points.

Hybrid. Front-of-house tips split by hours among front-of-house. Service charge split across the full team on a points basis.

The ACAS Code of Practice specifically warns against systems that exclude back-of-house workers entirely from pooled tips, as these are likely to be challenged as unfair.

A 2024 survey by Fourth, a hospitality workforce management provider, found that 62 percent of UK hospitality workers said they did not fully understand how their tips were calculated. That gap between what you think your team knows and what they actually know is where tribunal claims come from [opinion].

What records do I need to keep?

You must maintain a tipping record for every worker, covering a rolling three-year period. Each record must show the total tips allocated to that worker. Workers have the right to request a copy within a reasonable time.

In practice, your records need to capture: total tips received per pay period, the allocation method applied, the amount allocated to each worker, and the date each allocation was paid out.

The ACAS Code of Practice suggests responding to a worker's tipping record request within four weeks.

What happens if my restaurant does not comply?

Workers can bring an employment tribunal claim. The tribunal can order the employer to revise tipping practices and pay compensation. There is no specific cap written into the Act, so the financial exposure depends on the scale of non-compliance and the number of affected workers [opinion].

Beyond the legal risk, there is a practical one. Staff retention in UK hospitality is already under severe pressure. UKHospitality's Workforce Commission recorded an average annual staff turnover rate of 37 percent across the sector (UKHospitality, Workforce Commission Report 2023). A tipping dispute that becomes public makes retention worse.

How does this affect my card processing setup?

If your card terminal collects tips at the point of sale, the tip amount needs to flow cleanly into your tipping records. Most modern payment providers separate the base transaction from the tip in their reporting. If yours does not, this is the time to fix it.

If you are reviewing your payment setup alongside tipping compliance, our guide to card processing fees explained covers how to read what you are actually paying on every transaction. For restaurants specifically, our restaurant industry page walks through how payment costs and tip handling interact with your operating margins.

What should I do this week?

If you have not reviewed your tipping arrangements since October 2024, start now. The Act is already enforceable.

1. Audit your current system. Map every step from customer to worker for card tips, cash tips, and service charges.
2. Write your tipping policy. Use the ACAS Code of Practice as a template.
3. Appoint or confirm your tronc master. Make sure the person running it is genuinely independent. Document the appointment.
4. Set up record-keeping. Capture allocation data per worker per pay period from today.
5. Brief your team. Every worker should know the policy exists, where to find it, and how to request their tipping record.
6. Review your card terminal reporting. Confirm your provider gives you a clear tip breakdown per transaction.

What are the most common questions about the Tipping Act?

When did the Tipping Act come into force? The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024.

Do I need a written tipping policy? Yes. Every employer whose workers receive tips must have a written policy explaining how tips are allocated, available to all workers on request.

Can I still use a tronc system under the new law? Yes. A tronc system run by an independent tronc master remains legitimate. The Act requires fair and transparent distribution with a written policy.

What happens if I do not comply? Workers can bring an employment tribunal claim. Tribunals can order revised practices and compensation with no specified cap.

Are agency workers and zero-hours staff included? Yes. The Act covers all workers, including agency, zero-hours, and casual workers.

If your restaurant, pub, or café needs help reviewing its payment setup alongside tipping compliance, book a free rate comparison and we will walk you through what you are paying and where the savings sit.