Since 1 October 2024, the Employment (Allocation of Tips) Act 2023 has set new legal duties for every hospitality employer who takes a share of tips, pooled service charges or gratuities. The obligations are not optional and they are not phased in further. Restaurants, pubs, hotels, cafes and contract caterers are all in scope from the same date.
This page walks through what the Act requires, what "fair allocation" means in practice, the compliance checklist, and where a tronc sits in relation to these duties. For the operational setup of a tronc and troncmaster appointment, see our tronc scheme setup and troncmaster service.
The short answer: what the Tips Act requires of employers
Since 1 October 2024, any employer who receives a qualifying tip must pass 100% of it to workers without deduction, allocate it fairly in accordance with the statutory Code of Practice, maintain a written tips policy, and keep records of allocation. Agency workers are covered on the same basis as directly employed staff. Workers can bring tribunal claims for breaches of any of these duties.
What counts as a qualifying tip
The Act captures tips, gratuities and service charges that are received or controlled by the employer, whether paid by cash or card. A tip handed directly by a customer to an individual member of staff and kept by that person (never pooled or handled by the employer) falls outside the employer duties, though it remains the individual worker's own tax responsibility. In practice, almost all card-payment tips and pooled cash collections pass through employer control and are therefore qualifying tips subject to the Act.
The Act has applied since 1 October 2024. There is no further phase-in or grace period.
The four employer duties
The Act creates four distinct obligations. Failing any one of them exposes the business to tribunal liability independently of the others.
| Duty | What it means in practice | Evidence to keep |
|---|---|---|
| Pass on 100% | Every pound of qualifying tip must reach a worker. No deductions for card-processing fees, admin costs or any other overhead. Those costs are the employer's to absorb. | Payroll records showing the gross tip received and the matching payment to workers; bank or till reports. |
| Allocate fairly | Distribution must be fair and transparent, following the statutory Code of Practice. The Code does not prescribe a fixed formula; it sets out factors the employer must consider (see below). The allocation method must be consistent and documented. | A written allocation methodology; records of each allocation event showing the factors applied and the amounts assigned to each worker or group. |
| Written tips policy | The employer must have a documented tips policy, kept up to date, setting out how tips are collected, how allocation decisions are made, when tips are paid out, and how workers can raise a concern. | The policy document itself, with version dates. Workers should be able to access it on request. |
| Keep records | Records of tip allocation must be maintained. The gov.uk tips-at-work guidance and the statutory Code of Practice provide further detail on scope; consult the current text for specific retention expectations. | Allocation records by period, linked to the amounts passed to each worker; payroll run data; any tronc distribution sheets. |
What "fair allocation" means under the Code of Practice
The statutory Code of Practice does not mandate a fixed percentage split between front-of-house and kitchen, or between servers and managers. It requires the employer (or the troncmaster, if a tronc is in place) to consider a set of relevant factors and to apply them consistently. What matters is that the method can be defended as fair given those factors.
Factors the Code highlights include:
- The worker's role and contribution to the customer experience
- Hours worked during the period in which the tips arose
- The type of work performed (for example, customer-facing versus support roles)
- The seniority or length of service of the worker, where relevant
- Any written agreement or collective arrangement in place
- Whether the customer expressed a preference about how their tip should be distributed
There is no requirement to weight all factors equally, and a business can choose an allocation method that reflects its own team structure, provided it does not arbitrarily exclude a category of worker from the pool. The method must be documented and applied consistently; ad hoc or discretionary allocation each period creates both compliance and tribunal risk.
Agency workers are covered
The Act explicitly extends to agency workers. A worker supplied by a staffing agency and working at the employer's premises is entitled to participate in tip allocation on the same basis as directly employed staff. The employer is responsible for including agency workers in the allocation process; it is not sufficient to rely on the agency to handle this separately unless a clear written arrangement places that duty on the agency and the agency is distributing the worker's share from the employer-held pool.
Businesses that rely heavily on agency staff for events, seasonal cover or zero-hours arrangements need to factor agency workers into their written tips policy from the outset.
How workers enforce their rights: employment tribunal claims
A worker who believes an employer has failed to comply with any of the four duties can bring a claim to an employment tribunal. The Act gives the tribunal power to order the employer to revise its allocation method, to pay a worker the tips they should have received, and potentially to award additional compensation. Claims can be brought individually or on behalf of a group of affected workers.
The tribunal jurisdiction covers all four duties, including failure to maintain a written policy and failure to keep adequate records, not only underpayment of tips. Operators who have not yet formalised their policy and records are exposed even if they believe their actual tip distributions have been fair.
Workers also have a right to request information from the employer about tip allocation, and the employer must respond within a set period. Failure to respond, or providing an inadequate response, is itself a ground of complaint.
Where a tronc fits: the compliant distribution route and the NIC treatment
A tronc is a formal arrangement under which tips and service charges are pooled and distributed to workers by an independent troncmaster, rather than by the employer. A well-run tronc satisfies the Act's distribution and fairness requirements, provided the troncmaster operates in line with the Code of Practice and the employer does not interfere in individual allocation decisions.
The NIC treatment is a separate (and significant) benefit. Under HMRC's position at NIM02922, tips paid through an independently run tronc carry no employer NIC and no employee NIC, though PAYE income tax still applies. For a venue paying tips through payroll in the normal way, employer NIC at 15% applies above the £5,000 secondary threshold (from April 2025). On a venue distributing £100,000 in tips annually, that is up to £15,000 of employer NIC that a qualifying tronc arrangement eliminates.
Two conditions are non-negotiable for the NIC exemption to apply:
- The troncmaster must genuinely control allocation. The troncmaster decides who receives what and in what amounts. The employer may provide operational information (covers worked, hours, till data) but cannot direct individual outcomes.
- Any employer involvement in the allocation destroys the exemption. If the employer overrides the troncmaster or sets individual allocations, HMRC treats the payments as employment income subject to full NIC. This is confirmed in the E24 guidance on tips, gratuities, service charges and troncs.
A tronc also provides a clean documentary trail for the Act's record-keeping duty: the troncmaster's distribution sheets are, by their nature, a per-allocation record showing which workers received what amount and on what basis.
For the NMW position: tips of any kind, whether paid through payroll or through a tronc, cannot count toward the National Minimum Wage or National Living Wage. Wages and tips are separate obligations.
Getting your policy and tronc in place
A compliant position requires three things to be in place at the same time: a written tips policy, a record-keeping process, and a fair and documented allocation method. If the business processes significant tip volumes through card payments, a formal tronc arrangement addresses all three and adds the NIC saving.
Our tronc scheme setup and troncmaster service covers the full appointment, rules document, HMRC registration and ongoing distribution. Our hospitality payroll service covers the payroll integration for businesses handling tip distribution without a separate tronc. For restaurants and pubs specifically, see our restaurant accountancy hub and pub and bar hub for the wider compliance and tax picture.
If tips represent material turnover for your operation, this is worth getting right now rather than waiting for a tribunal claim to force the review.