Non-compliance with stricter tipping laws could lead to fines
Hospitality and service businesses could face fines and employment tribunal claims if they fail to comply with the Employment (Allocation of Tips) Act 2023, which requires employers to pass on all qualifying tips, gratuities, and service charges to workers without deductions.
The Act affects more than two million workers across restaurants, bars, retail, hairdressing, taxi firms, beauty parlours, and more. With the festive season - the busiest tipping period – almost in full swing, and further legislative changes due in 2026, businesses must act now to ensure compliance.
Julie Gunnell, Associate Director of Payroll Growth at Azets, said:
“This Act has now been law for a year, and employers are obliged to discharge their responsibilities fairly and pass on 100 per cent of all qualifying tips to hard-working staff who earned then.
“If not, staff can hold bosses fully accountable by bringing a claim to an employment tribunal, and this could lead the minority of businesses who continue unacceptable tipping practices being made to pay fines and/or compensation.”
H-J Dobbie, Head of HR Consultancy at Azets, added:
“We know that the vast majority of employers are fully supportive of the Tipping Act, not least because it properly rewards dedicated, deserving and often low paid staff, but also because it builds trust with customers who are more likely to tip if they can be sure of its ultimate destination.
“When it comes to the Tipping Act, employers should use a clear and objective set of factors to determine the allocation and distribution and ensure that they give due consideration to all workers involved in providing service to customers, including temporary, zero hour and agency workers to avoid discrimination, - genuinely self-employed workers should not be included. Fair allocation does not always mean an equal allocation, so employers will need to consider several factors when deciding how to allocate tips among their workers.
“Record-keeping is also a requirement, and the employer must create a record of how every qualifying tip has been dealt with, detailing all qualifying tips received by the employer at the place of business, and the amount allocated to each worker. Records must be kept for a period of three years beginning with the date on which the qualifying tip was paid.
“Workers can make a written request to view their employer’s tipping record for a period dating back up to three years, provided they worked for the employer for the full duration of the requested period. They can only make one request in any three-month period, and an employer must provide its tipping record within four weeks.”
The Government’s Code of Practice offers guidance on fairness, qualifying tips, digital tipping, non-monetary tips, and timescales for payment.
More changes in future?
Looking ahead, the Government plans to strengthen tipping laws from October 2026 under the proposed Employment Rights Bill, introducing new requirements:
- Employers must consult workers or their representatives before creating a tipping policy.
- Tipping policies must be reviewed and updated every three years.
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