Enhanced Legislation on : What’s Challenging and When

From October 2026 new provisions under the Employment Rights Bill will come into force, further strengthening the protections first introduced by the Employment (Allocation of Tips) Act 2023.

What are the current requirements under the existing legislation?

The 2023 Act made it unlawful for employers to withhold or unfairly distribute tips, gratuities, and service charges that are intended for workers. It required employers to:

Pass 100% of tips to workers without deductions (except those required by law, such as tax)
Establish a written policy explaining how tips are distributed
Maintain transparent records showing how tips are handled and make these available to employees upon request
Ensure tips are distributed fairly and consistently among staff

What are the new requirements?

Building on these foundations, the enhanced legislation taking effect in October 2026 introduces additional measures designed to strengthen transparency and employee voice in how tips are managed.

Under the new requirements, employers must:

Consult with employees (or their elected representatives) when creating or amending a tipping policy
Review their tipping policy at least every three years to ensure it remains fair and up to date
Provide an anonymised summary of staff feedback received during consultation to all employees

This means that the allocation of tips will no longer just need to be fair — it must also be seen to be fair, through open dialogue, documentation and regular review.

What will I need to do as an employer?

For employers in industries such as hospitality, leisure, food service, or beauty - where tipping and service charges are common - this new legislation will require greater accountability and transparency.

In practical terms, employers must:

Involve staff in shaping or reviewing tipping policies, either directly or through elected representatives
Retain evidence of consultation and how staff feedback influenced the final policy
Formally review tipping and service charge policies every three years and updated as needed
Maintain clear records of all tips collected, distributed and paid, along with evidence of fairness and compliance

This additional layer of consultation not only strengthens employees’ trust but also protects employers from potential disputes or reputational damage.

Do I need to do anything now?

To prepare for the new requirements, businesses should begin reviewing their practices now. Key steps include:

Audit your current tipping policy:

Ensure there is a written policy in place
Check whether it clearly explains how tips, gratuities, and service charges are distributed
Record the last time it was reviewed
Plan for consultation:

Identify how employee consultation will be conducted - through elected representatives, staff meetings, or anonymous feedback
Keep a record of how input was gathered and considered

Prepare for policy reviews:

Establish a three-year review cycle for your tipping policy
Document any changes made and communicate them to staff
Maintain detailed records:

Ensure payroll and accounting systems accurately track and distribute tips
Keep anonymised data on consultation feedback and share a summary with all employees
Train managers and supervisors:

Provide guidance on how to handle employee questions and maintain compliance
Reinforce the importance of transparency and consistency in tip distribution

Can you give me some examples of best practice?

Example 1: Transparent consultation and review
A restaurant introduces a tipping policy that divides service charges evenly across front-of-house and kitchen staff. Before finalising it, management consults with employees, receives feedback that kitchen staff want a higher share due to fewer customer-facing opportunities, and adjusts the distribution accordingly. The policy is reviewed every three years, with staff feedback invited each time.
Example 2: Clear communication and record keeping
A hair salon publishes its tipping policy in the staff handbook, clearly stating that tips are shared based on hours worked. Employees can request to see anonymised records showing total tips collected and distributed each month. Consultation summaries are shared with all staff.

These examples demonstrate fairness, transparency, and accountability; the key pillars of compliance.

What about examples of poor practice?

Example 1 – Lack of consultation
A hotel manager drafts a tipping policy without consulting employees, deciding that management will retain 20% of all tips. Employees later discover this through payslips and raise a formal complaint. The business fails to meet consultation requirements and risks both a tribunal claim and reputational harm.
Example 2 – Unclear distribution and missing records
A café collects service charges but cannot show how they were distributed or how totals were calculated. When a former employee requests access to records, none are available. The company faces penalties and a loss of employee trust.

What are the consequences if I fail to comply?

Failure to meet the enhanced legislation could lead to:

Employment tribunal claims from workers who believe tips have been withheld or unfairly distributed
Orders to repay withheld sums, plus potential compensation for breach of statutory duty
Reputational damage, particularly in sectors where fairness and customer perception are key
Increased scrutiny from HMRC if payroll or record-keeping systems are found to be inadequate

The reputational and financial cost of non-compliance is likely to far exceed the effort required to maintain compliance.

How can Stallard Kane help?

At Stallard Kane Associates, we are here to help businesses prepare for and implement the upcoming changes with confidence. Our support will include:

Providing fully compliant tipping policy templates
Advising on the consultation process to help employers engage with staff effectively
Keeping clients informed through regular updates as further government guidance is released

In summary, the enhanced legislation on tipping aims to make tip allocation in the UK fairer, more transparent, and more employee-focused than ever before. By consulting staff, maintaining clear policies and reviewing them regularly, businesses can stay compliant - and build a culture of trust and fairness in the process.

Stallard Kane Associates will continue to guide and support clients every step of the way as this important legislation approaches implementation.

Take the next step in protecting your business and employees. Please don’t hesitate to contact your designated HR Advisor, we're here to help. For guidance, speak to your HR Advisor hr@skaltd.co.uk | 01427 402 403

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