The Employment (Allocation of Tips) Act 2024

The Employment (Allocation of Tips) Act 2024 inserted a new Part 2B into the Employment Rights Act 1996. It turned what had been voluntary good practice into statutory duties, backed by a Code of Practice that tribunals must take into account.

• Tips must be passed on in full. No deduction of any kind — card processing fees, admin charges, breakages, till shortages — may be taken from the tip pool.
• Allocation must be fair and transparent. Employers must have regard to the Code of Practice when deciding how tips are shared, including between front of house and back of house.
• Timing is fixed. Tips must reach workers no later than the end of the month following the month the customer paid them.
• Agency workers count. Workers supplied by an agency to a site must be included in the allocation on the same fair basis as employed staff.

The Act applies to employer-received tips — anything the business controls or significantly influences. In practice that means card tips, discretionary service charge added to the bill, and cash handed to the business rather than kept by an individual.

Cash a customer gives directly to a member of staff, who keeps it, is outside the Act (though the individual still has to declare it for tax). Mandatory service charges that the business treats as revenue are a different matter again — if it is not discretionary, it is turnover, and calling it a tip does not change that.

Getting this classification right is the first thing a compliance review should test, because everything downstream depends on it.

The Act does not prescribe percentages. The Code of Practice sets out factors an employer may legitimately use when designing an allocation, and the test is whether the approach is reasonable, consistently applied and explainable.

• Type of role and the nature of the work performed
• Basic pay and how the worker is engaged
• Individual and team performance
• Seniority and level of responsibility
• Length of service
• Customer intention, where it is genuinely identifiable

Kitchen inclusion is the flashpoint. Excluding back of house entirely is not automatically unlawful, but it is difficult to justify at tribunal without a documented rationale — and it is the allocation decision most likely to be challenged by staff. A weighted points system that names the factors it uses is far more defensible than a percentage that nobody can explain.

Designing that system, and stress-testing it against the Code, is the core of tronc scheme design.

Where tips are paid at a place of business more than occasionally and not exceptionally, the employer must have a written tipping policy available to all workers at that site. It has to state whether the employer requires or encourages tips, and how it ensures tips are allocated fairly.

Separately, the employer must keep records of all qualifying tips received and how they were allocated, for three years from the date of receipt. A worker can make a written request for the records relating to them covering any period in the previous three years, and the employer must respond within four weeks.

Both duties are cheap to satisfy in advance and expensive to reconstruct after a request arrives. Running distribution through a tronc with documented rules produces the policy and the audit trail automatically — outsourced tronc management exists largely to remove this administrative burden from operators.

Workers and agency workers can bring claims in the employment tribunal. Two routes exist: a complaint about the allocation or payment of tips (generally within 12 months of the failure), and a complaint about the policy or records duties (within three months).

On an allocation claim a tribunal can order the employer to revise a previous allocation, make a payment to the worker, and award compensation of up to £5,000 for consequential financial loss. On a policy or records claim the award is up to £5,000 as well. Those figures are per claimant — in a venue with fifty staff on a shared arrangement, one successful claim tends to be followed by others.

Note that the Tips Act and HMRC are separate exposures. A scheme can be Tips Act compliant and still lose its National Insurance treatment because the employer is directing allocation, or vice versa. Both need to hold at the same time.

1. Classify every income stream: discretionary service charge, card tips, cash, mandatory charges.
2. Confirm no deductions of any kind are being taken from the pool.
3. Document the allocation rules, including how back of house is treated and why.
4. Publish the written tipping policy and make it accessible to every worker at the site.
5. Check distribution timing — end of the following month, every month, without exception.
6. Include agency workers in the allocation.
7. Store allocation records for three years and be able to produce a worker's own records within four weeks.
8. Confirm the employer is not directing allocation, so the NIC treatment survives.
9. Review annually, and whenever roles, sites or the till system change.

If you cannot tick all nine with evidence, a tronc audit and review will identify the gaps before a worker or HMRC does.