If you have employees who receive tips then you’ll need to be aware of some further changes to the law related to them that is in the pipeline.
What’s changing?
October 2024 saw significant legislative changes to the distribution of tips and gratuities, under the Employment (Allocation of Tips) Act 2023 (“Tipping Act”), requiring employers to pass on 100% of tips fairly. This year, as part of the Employment Rights Act 2025, the government has been consulting on a revised statutory Code of Practice on Fair and Transparent Distribution of Tips, adding more obligations on employers, in particular how tipping policies are created and reviewed.
The government initially consulted on the new requirements between February and April 2026, with a draft Code laid before Parliament on 29 June 2026. Following criticism about the lack of consultation, the government has since been consulting on the draft code and the consultation is due to close on 29 September 2026.
What do employers need to be aware of?
The new requirements will require employers to consult workers or their representatives when developing or revising tipping policies; to review policies at least every three years; and to provide workers with an anonymised summary of consultation responses.
Other changes proposed: employers should not rebrand service charges to avoid the legislation; strengthening guidance on which workers should be included in tip allocations; and discouraging fixed or guaranteed allocations. The Code also provides further guidance on avoiding equal pay disputes and makes clear that data protection should not be used unduly to withhold tipping records.
When will this happen?
The consultation closes on 29 September 2026, with the new requirements and Code expected to take effect later in 2026. Despite this uncertainty on how the new consultation requirements will be implemented in practice, there are some proactive steps employers can take:
• Audit your tipping arrangements. Understand how tips are currently allocated and what factors were considered when deciding on the distribution method. You should also audit your current record keeping to ensure tipping data is adequate and kept for the required three years.
• Ensure your tips policy is up to date and easily accessible to all workers.
• If you’re not already doing it, start discussions with your staff about how tips are distributed.
• Plan how and when to consult with your workers, ensuring you factor in all impacted groups at all places of work.
• Consider if your staff need any training on how to talk to customers about tips. The consultation reminds employers of the importance of ensuring that any automatically added tip is well communicated to customers, being clear whether it is optional or mandatory.
There is a lot to think about with these changes, which seem in large part to be an attempt to prevent employers from avoiding their obligations. Ultimately, acting now to ensure compliance with the current law will put employers in a good position to get on top of the upcoming changes.