On 1 October 2024 the rules on tips, gratuities and service charges in the UK changed under statute. The Employment (Allocation of Tips) Act 2023 inserted a new Part 2B into the Employment Rights Act 1996 and turned a decade of voluntary codes into a hard legal duty for every employer in scope — restaurants, pubs, bars, hotels, cafes, takeaways, salons, and any operation where customers tip.
If you run an independent restaurant, a small hotel group, or a regional pub company, you are in the regulatory headlights. The Department for Business and Trade enforces the duties through the statutory Code of Practice on Fair and Transparent Distribution of Tips, workers can take a claim to an employment tribunal, and HMRC polices the PAYE and NIC treatment of any tronc.
This guide uses only primary sources: legislation.gov.uk, gov.uk, the Code, and HMRC manuals.
What changed on 1 October 2024
The Act commenced on 1 October 2024 and applies to all qualifying tips received by an employer on or after that date. The statutory definitions and duties are in sections 27C to 27Y of the Employment Rights Act 1996, inserted by the Act. (Act, s.1; Employment Rights Act 1996, Part 2B)
Four duties apply from day one.
- Fair allocation. Employers must allocate qualifying tips, gratuities and service charges fairly between workers at the place of business. (Code of Practice)
- No employer retention. The employer cannot keep any portion of a qualifying tip — every penny passes to workers without deduction (other than statutory deductions such as PAYE). (gov.uk: Tips at work)
- One-month deadline. Tips received in one month must be distributed to workers by the end of the following month. (Employment Rights Act 1996, Part 2B)
- Written policy and records. Employers must have a written tipping policy available to workers, and must keep records of qualifying tips and how they were allocated for three years. (Code of Practice)
The duty is on the employer, not the troncmaster. Outsourcing tip distribution to a tronc does not outsource the legal duty to allocate fairly or to keep records.
The Code of Practice — what "fair" actually means
The statutory Code of Practice on Fair and Transparent Distribution of Tips was published on 29 July 2024 and took effect on 1 October 2024 alongside the Act. Tribunals have to take it into account when deciding claims.
The Code lists factors an employer may use to decide who gets what:
- hours worked during the period when tips were received
- the worker's role (front of house, kitchen, support)
- individual or team performance
- seniority and level of responsibility
- length of service
- customer intention (a tip left specifically for one server)
Whatever combination you use, you need a documented basis for the choice and you must consult workers. (Code of Practice)
What you cannot do is allocate in a way that discriminates under the Equality Act 2010. A policy that quietly pays men more than women for the same shift, or excludes agency staff working alongside permanent staff, is unlawful regardless of the Tips Act. Agency workers placed at the establishment are explicitly in scope of the fair allocation duty. (Code of Practice)
The Code also requires the employer to consider workers' views when designing and reviewing the policy. A policy written once in October 2024 and never revisited is unlikely to satisfy the Code.
Troncs — the historical NIC mechanism
A tronc is a specific UK arrangement for sharing tips. A nominated person — the troncmaster — runs a separate PAYE scheme and distributes pooled tips among workers. HMRC sets out the rules in its E24 guidance on tips, gratuities, service charges and troncs and its National Insurance Manual at NIM02905.
The historical attraction of a tronc is the National Insurance position. Under the Social Security (Contributions) Regulations 2001, payments described as gratuities are disregarded from earnings for NIC purposes where the payment is not made by the employer and is not allocated by the employer to the worker. In practice that means a properly run independent tronc — where the troncmaster, not the employer, decides allocation — can pay out tips free of employer and employee NIC, although Income Tax under PAYE still applies. (HMRC NIM02905)
Two things have shifted under the 2024 regime.
First, HMRC's E24 guidance was updated in November 2024 to require employers to contact HMRC to set up a tronc scheme, and again in April 2025 to address agency workers and troncs. The compliance bar is higher than it was.
Second, the Act's fair allocation duty sits on the employer even when a tronc is in place. If the troncmaster makes a fair allocation that meets the Code, the employer is broadly safe. If the troncmaster makes an unfair allocation, the employer is still on the hook. HMRC and DBT now share an interest in how the pool is split, and audit patterns reflect that.
A tronc remains useful where cash and card tips are material, but it is no longer a shortcut around the fair allocation rules.
Worker rights — what the staff can demand
The Act gives workers two statutory rights and a route to an employment tribunal.
A worker can request a written summary of the tips received at the place of business and the amount allocated to that worker over any one-month period in the previous three years. The employer must respond within four weeks. (Employment Rights Act 1996, Part 2B)
A worker can also bring an employment tribunal claim where the employer has failed to comply with the allocation duty, failed to provide a written policy, or failed to respond to a request for information. Tribunals can order the employer to revise the allocation, compensate the worker for up to £5,000 of consequential loss for an unfair allocation, and require corrective action on the policy.
Workers have twelve months from the breach to bring an information claim. For allocation claims the limit runs from the date the tip should have been paid out. (Employment Rights Act 1996, Part 2B)
In a sector that historically resolved tip disputes informally, this is a meaningful change. A single disgruntled server with a smartphone calendar and three years of payslips can build a tribunal claim without external help.
The records-keeping reality
The records duty is unglamorous and underestimated. The Code requires employers to keep, for three years from the date of receipt:
- the amount of qualifying tips received at each place of business
- the amount allocated to each worker
- the date of receipt and the date of allocation
- the written tipping policy, version-controlled, with the dates each version was in force
That is per-worker, per-tip, per-policy-version, for three rolling years. For a forty-cover restaurant taking £6,000 a month in service charge across twenty staff, that is several thousand allocation rows a year and a documented basis for every one of them. A spreadsheet works until it doesn't.
What an HR platform needs to do
An HR platform is not a tronc engine. The actual calculation of who gets what, the PAYE under the tronc, and the NIC position belong with payroll or with a specialist tronc provider. What the HR platform has to do is the surrounding documentation work that the Act and the Code make compulsory.
Table stakes for hospitality SMEs in 2026:
- Written tipping policy storage with version history — every revision dated, archived, and retrievable for three years.
- Induction acknowledgement — every new starter signs the current tipping policy at onboarding and the signed copy is held against their record.
- Per-employee allocation visible on the payslip — workers can see the tronc amount, the period, and the basis without having to ask.
- Employee self-service request route — workers can request the written summary of their last three years' tips through their own login rather than emailing the manager.
- Audit trail — who saw the policy, when, who acknowledged it, when the policy was last revised, who approved the revision.
If your current stack is a folder of PDFs and a payroll company, the records duty alone is enough to justify a rethink.
How WagePerks fits
WagePerks is not the tronc engine. We do not calculate the allocation, run the separate PAYE scheme, or set the rules for who gets what — that belongs with your payroll provider or a specialist tronc partner. What WagePerks covers is the documentation and visibility duties that surround it.
The written tipping policy lives in document management with full version history, induction acknowledgements, and three-year retention by default. The per-employee tronc allocation appears alongside salary on the payslip module, so workers see what they were paid and why without having to ask. The HR platform holds the worker record, the policy acknowledgement, and the request log. The recognition module surfaces tip-linked awards where you want to formalise customer feedback.
WagePerks is £4.50 per employee per month, all eleven modules included, white-label included, rolling monthly. Full feature parity in any modern browser; native iOS and Android apps launching Q3 2026. See the pricing page for the breakdown and the hospitality industry page for the sector view.
Sources
- Employment (Allocation of Tips) Act 2023 — legislation.gov.uk — the Act itself and the framework of duties.
- Employment (Allocation of Tips) Act 2023, section 1 (enacted) — legislation.gov.uk — confirms insertion of Part 2B into the Employment Rights Act 1996.
- Employment Rights Act 1996, Part 2B — legislation.gov.uk — sections 27C to 27Y on qualifying tips, written policy, worker information rights, and tribunal route.
- Code of Practice on Fair and Transparent Distribution of Tips — gov.uk — statutory Code, published 29 July 2024, in force 1 October 2024.
- Tips at work — gov.uk — public-facing summary of the rules, troncs, and worker rights.
- E24 — Tips, gratuities, service charges and troncs — gov.uk / HMRC — HMRC guidance on PAYE, NIC, NMW and VAT treatment, including the November 2024 change requiring employers to contact HMRC to set up a tronc.
- National Insurance Manual NIM02905 — gov.uk / HMRC — the NIC disregard for gratuities and the conditions for a tronc to be NIC-exempt.
- Equality Act 2010 — legislation.gov.uk — the anti-discrimination baseline that any allocation policy must respect.
Sources verified 2026-06-11. We re-verify quarterly.
Further reading
- UK Holiday Entitlement Accrual — 2026 Guide — the other hospitality rota headache, also new since 1 January 2024.
- Right-to-Work Checks: What UK SMEs Need to Know in 2026 — civil penalties of up to £60,000 per worker, also enforced harder since 2024.
- Recognition vs Pay Rise — UK SME — why formal recognition often beats a 2% raise in retention terms.
- How to choose an employee benefits platform — UK checklist — the buyer's checklist for SMEs.
- Hospitality industry page — the WagePerks hospitality view.
- WagePerks Learn — the full reference library.
Next steps
- See WagePerks for hospitality — the sector page covering document storage, payslip visibility, and policy acknowledgement.
- Read the pricing — £4.50 per employee per month, eleven modules, white-label, rolling monthly.
- Talk to us — fifteen minutes on whether your current stack covers the four Tips Act duties.