Tips and service charges

2. Sharing tips fairly

By law, employers must share tips, gratuities and service charges between employees in a fair and transparent way. This applies if an employer has 'control or significant influence' over how tips are divided.

The law is the Employment (Allocation of Tips) Act 2023.

The Code of Practice on fair and transparent distribution of tips accompanies the law.

An employer might have their own policy on tips, but the Code is the minimum procedure they must follow. If a case reaches an employment tribunal, the judge will consider whether the employer has followed the Code of Practice.

Being fair

The Code of Practice sets out principles to help employers decide how to divide tips fairly between employees.

For example, it says that:

• fairness does not mean employees must give the same proportion of tips to all employees
• employers should use clear and objective factors when deciding how to share out tips

What's fair will depend on:

• the type of workplace
• the jobs people are doing
• what's agreed with employees and their trade union or representatives, if they have them

Employers should consult with employees and any trade unions when deciding how to share out tips.

Read the Code of Practice on fair and transparent distribution of tips on GOV.UK

Example – considering factors for fairness

A sit-down pizza restaurant is open for lunch and dinner.

It might use the following factors to share out tips fairly:

• the time of day the tips are paid and how busy service is
• whether an employee serves tables, works in the kitchen or at the bar and how busy each area is
• whether certain employees have more responsibility, for example a head waiter
• whether any individuals or teams perform to a higher standard or get any complaints

Being transparent

Employers must make clear in a written policy how they divide tips fairly. They should also make this clear in employment contracts.

Employers must keep records of tips.

Find out more about policies and records

Discrimination

Employers must not discriminate in the way they share out tips.

Employers should carefully consider whether factors for sharing out tips would discriminate against anyone.

Employers should discuss how to avoid discrimination when they consult with employees or their representatives on how to share tips fairly.

Find out more about discrimination at work

Agency workers

Employers should treat agency workers in the same way as other employees.

When an agency worker starts their assignment, the employer or agency should:

• make them aware of the tips policy
• make sure they understand who they can raise concerns with or ask questions about tips

Paying tips to agency workers

Employers can either:

• pay tips directly to the agency worker
• pay tips to the agency first, who passes them onto the agency worker

If the employer pays tips to the agency worker directly, they must pay them at the same time as other employees. This is by the end of the month after the month the tips are received.

If the employer pays tips to the agency first, they must do this at the same time as paying other employees. The agency must pass the tips onto the worker. They must do this no later than the end of the month after the employer passed on the tips.

If tips are not shared out fairly

There are steps an employee can take if their employer or a tronc is not sharing out tips fairly.

It's a good idea to raise the problem informally first. They can do this by talking with their employer. This can help resolve a problem quickly if there's been a misunderstanding or mistake.

An employee can raise a grievance if:

• raising it informally does not resolve the problem
• they feel the problem is too serious to deal with informally

A grievance is where an employee makes a formal complaint to their employer.

If the problem is still not resolved, they might be able to make a claim to an employment tribunal.

If an employee's tribunal claim is successful, an employer might have to take action for other employees who are affected. The other employees do not need to have made a claim.

3. Policies and records

By law, employers must have a written policy and keep records if:

• tips are paid in their organisation more than 'occasionally or exceptionally'
• they have 'control or significant influence' over tips

The law is the Employment (Allocation of Tips) Act 2023. It is known as the Tipping Act 2023.

The Code of Practice on fair and transparent distribution of tips on GOV.UK accompanies the law. The Code is the minimum procedure an employer must follow.

The Tipping Act and Code do not apply to employers who only receive tips on rare occasions. For example, a shop that gets tips a few times a year. It's still a good idea to have a policy and keep records. This can help make the process clear if employees do get tips.

What the policy must include

A policy on tips must set out:

• whether the employer requires or encourages customers to pay tips or service charges
• how the employer makes sure they deal with and share out tips fairly

The employer must make the policy available to all employees, including agency workers.

For example, the employer could:

• include the policy in employees' contracts or written statements of employment particulars
• make a physical or electronic copy of the policy available in a shared employee area – for example, an intranet or training handbook

Creating or changing a policy

Employers should review existing policies and contracts to make sure they follow the Tipping Act and Code.

An employer might need to create or change a policy. If they do, they should:

• consult with employees or their representatives
• give proper notice of any changes

If there's a collective agreement with a trade union, employers might be legally required to carry out collective consultation.

After an employer has created or updated a policy, they should regularly review it.

Changing employment contracts

When an employer creates or changes a policy, they might be changing employment contracts.

If they're changing contracts, an employer should get agreement from employees or their representatives. This involves discussing all available options and listening to suggestions.

An employer must also follow a fair procedure to change contracts.

Find out more about changing an employment contract

Keeping records

Employers must keep records of tips for 3 years from when the tips were paid.

For all tips, the employer must record:

• the amount of money received
• the amount they paid to the employee
• the amount they arranged for a troncmaster to allocate

A troncmaster is someone an employer uses to share out tips. It could be an employee, an accountant or an independent company.

Requesting to see records

Employees can ask to see records of tips once every 3 months.

In each request, employees can ask to see records for either:

• one month
• 2 or more consecutive months

Employees can ask to see records going back up to 3 years. But they can only see records for the time they've worked for the employer.

When an employee makes a request, the employer must give them the records within 4 weeks.

If an employer does not have a policy or records

It's a good idea for an employee to raise any issues about policies or records informally first. They can do this by talking to their employer. This can help resolve a problem quickly if there's been a misunderstanding or mistake.

An employee can raise a grievance if:

• raising it informally does not resolve the problem
• they feel the problem is too serious to deal with informally

A grievance is where an employee makes a formal complaint to their employer.

Making a claim to an employment tribunal

Employees and agency workers can make a claim to an employment tribunal if their employer has:

• failed to create a written policy on tips or make it available
• failed to keep records on tips or make them available

An employee has 3 months minus 1 day to make a claim. This runs from the date their employer failed to provide a policy or records.

If a claim is successful, an employer could have to pay the employee up to £5,000.

Find out more about:

• making a claim to an employment tribunal
• employment tribunal time limits