Key takeaways
Employers must consult regarding tipping policies
Employers must consult workers or unions and share consultation summaries.
Greater clarity on in-scope tips
Tip treatment depends on employer control, not payment method or labels.
Fair tip distribution requires objective criteria
Tip allocations should reflect service contribution, avoiding fixed tip shares.
The Employment Rights Act 2025 contains changes to the regime for the fair and transparent distribution of tips, gratuities and service changes (‘tips’), which came into force on 1 October 2024.
When these changes are implemented, employers within scope of the tipping legislation will be required to consult with any recognised trade union(s), or with workers directly where there is no union, regarding the first version of their written tipping policy and to publish summary details of the views expressed in that consultation to the affected workers.
They must also review the tipping policy once every three years. These provisions were originally due to be implemented in October 2026, but this date has since been pushed back, and the implementation timetable now says they will come into force ‘by the end of 2026’.
Earlier this summer, the government published a draft revised Code of Practice on the Fair and Transparent Distribution of Tips, before promptly withdrawing it without explanation. The government has since re-published the draft revised Code of Practice, together with a consultation on the draft revised Code.
What changes are included in the draft revised Code of Practice?
The draft revised Code builds on the content of the current Code of Practice, which remains in force until the new Code is brought into force. In summary, key changes introduced in the draft revised Code, which remains open to consultation and subject to approval by parliament, include:
Paragraph 2: substance not terminology is key and relabeling is discouraged: The draft revised Code makes it clear that ‘whether a payment falls within the scope of legislation will depend on its substance rather than the terminology used’. Employers are discouraged from seeking to avoid the legislation by relabeling tips, gratuities or service charges. Genuine charges which are unrelated to service by workers remain permissible.
Paragraph 6: new employer requirements explained: The draft revised Code includes a summary of the main requirements employers will face once the tipping provisions of the Employment Rights Act 2025 come into force later this year. This summary includes the following new requirements:
To review the written tipping policy at least once every three years.
To consult with any recognised trade union, or the workers directly where there is no union, when developing or reviewing the written tipping policy.
To make an anonymised summary of the views expressed during consultation available to all workers at the place of business where the policy applies.
Paragraphs 13-17 – clarity on ‘qualifying’ tips: The draft revised Code explains when cash, card, app-based and non-monetary tips are in or out of scope depending on employer receipt, control or influence. The principal policy position has not changed: tips received and controlled by the employer remain subject to the employer's distribution obligations, whereas tips paid to workers directly remain outside those obligations. Notably, the draft revised Code contains expanded content regarding tipping via digital and electronic methods, clarifying that where these methods are used to ‘directly tip members of staff, bypassing the employer altogether, [they] can be regarded as worker received tipping, which [are] out of scope’ (our emphasis added) for the employer distribution requirements. However, we recommend employers exercise caution when interpreting this part of the Code as, in our view, this will not exclude digital or app-based tipping from being within scope where the employer has some control over the distribution of the tips to its staff by the app or platform.
Worked example one: digital tipping platform |
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Customers use a QR code to tip named employees through an independent app and the payments are transferred directly to those named workers without passing through the employer's payroll or bank account. The draft Code indicates that such tips may fall outside the employer distribution rules. However, if digital tips are pooled and the employer controls or determines how those funds are allocated amongst staff, the position may be different. |
Paragraph 27 – distribution should be based on service provision: The draft revised Code emphasises that ‘the distribution of tips should broadly be based on those involved in directly providing service at the place of business when and where tips are left’. In determining which staff are in scope, job titles are less relevant than whether a particular worker, as part of their job, personally interacts with customers, or prepares, handles, serves or otherwise provides the food, drink, hospitality or experience that the customer directly consumes or receives at that place of business.
Worked example two: front-of-house and kitchen staff |
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A restaurant distributes tips with 70% allocated to waiting staff and 30% to kitchen staff. Under the draft revised Code, such an arrangement may still be fair if the employer can demonstrate that the split reflects the respective contributions of those workers to the customer experience and has been determined using objective criteria. |
Paragraph 29 – fixed allocations discouraged: The draft revised Code cautions employers against having a tipping policy which provides for fixed, minimum or guaranteed allocations of tips, confirming that these ‘may be deemed unfair as they risk unfairly increasing the variability of tips for those workers who do not benefit from fixed or guaranteed monetary amounts.’ Instead, the tips allocated to different job roles should be based on objective factors.
Worked example three: guaranteed minimum tip allocations |
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A hotel's tipping policy guarantees supervisors a fixed £100 per month from the tip pool before the remainder is distributed amongst other staff. The draft revised Code suggests that fixed or guaranteed allocations may be viewed as unfair because they can reduce the share available to other workers. |
Paragraph 30(a) – additional context re ‘type of role/work’: In the list of objective factors that employers may wish to consider when determining the allocation and distribution of tips, the draft revised Code adds additional contextual detail regarding the ‘type of role/work’. Making it clear that the distribution between front of house and backroom workers might depend on ‘the extent to which the worker is involved in providing the service…’.
Paragraph 31 – fairness of distribution scheme is assessed holistically: The draft revised Code reminds employers of the need to recognise that ‘payments under the scheme represent a share of the qualifying tips available for distribution and are not additional discretionary payments by the employer.’ If some workers receive a higher share of tips, ‘the fairness of that allocation should be considered in the context of the overall distribution of tips, including its effect on the shares received by other workers or groups of workers.’ The fairness of the chosen method of distribution is to be assessed across the entire allocation scheme, not by focusing on isolated examples which are favourable or unfavourable to particular workers or roles.
Paragraphs 33-39 – genuine consultation on tipping policy is required: The draft revised Code provides expanded guidance on the need to consult with trade unions or workers both during both the initial development of the written tipping policy and subsequent reviews, which must take place at least every three years. This consultation should not be a ‘paper exercise’, it ‘should be genuine, considered and conducted in good faith, with sufficient time allowed for those participating…’. However, employers are also reminded that the consultation process ‘remains advisory rather than binding’, meaning that employers are ‘not required to follow every suggestion made by workers, as long as they can demonstrate they have followed the requirements of fairness and transparency.’
Consultation should be proportionate to the size, complexity and nature of the business. Various methods can be used to consult, including group discussions and surveys. The consultation process should seek views from all workers and consider the views of minority groups, including those less likely to participate due to barriers such as language, cultural background, disability, literacy, confidence, or the nature of their role. A simple majority vote should not generally be the default mechanism for determining the consultation outcome, particularly if this vote would favour the views of the largest group of workers.
Employers should keep a reasonable written record of the consultation (including the consultation process undertaken, the views expressed within it and the outcomes) and make an anonymised summary of the consultation process/outcome available to workers.
Worked example four: meaningful consultation |
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An employer circulates a draft tipping policy, invites comments from workers, holds a meeting to discuss concerns and subsequently amends parts of the proposal before implementation. This is more likely to constitute genuine consultation than simply presenting a complete tipping policy and inviting comments after the decision has effectively been made. |
Paragraph 57 – sharing tipping policy with customers/the public encouraged: Whilst acknowledging this is not a legislative requirement, the draft revised Code encourages employers to ‘share their written tipping policy with customers, or to display it publicly’, arguing that doing so ‘can enhance confidence and transparency…’.
How can employers prepare for these changes?
Employers in the hospitality, leisure and service sectors should start preparing now rather than waiting for the new consultation requirements to take effect. In particular:
Review your existing tipping policy now to identify whether it remains fair, transparent and capable of being explained to workers.
Map how tips are currently received (cash, card, QR codes, apps and third-party platforms) and determine which payments fall within the scope of the legislation.
Document the rationale for distribution decisions. If different groups of workers receive different proportions of tips, ensure there are objective reasons which can be evidenced if challenged.
Plan a meaningful consultation process with workers or recognised trade unions. Employers should be able to demonstrate that feedback was genuinely considered, even where suggestions are not ultimately adopted.
Train managers on the tipping arrangements, so that they can explain the policy consistently and address worker queries.
Consider publishing the policy externally, for example on the company website or in customer-facing materials, to enhance transparency and customer confidence.
Keep records of consultations, reviews and changes to the policy. This will help demonstrate compliance and provide an audit trail if concerns are later raised.
Next steps
The consultation on the draft revised Code of Practice closes on 29 September 2026. We will report any developments in due course, including the implementation date (which is expected to be ‘before the end of 2026’).
If you have any questions about how the tipping code of practice may affect your business, or need support with an employment matter, learn more about our Employment expertise or contact us today to discuss how we can help.
