The Employment (Allocation of Tips) Act 2023 came into force in October 2024. It requires employers to ensure that all tips, gratuities and service charges paid by customers are passed in full to workers — without any deductions for admin, credit card fees, or other operational costs. Here's the 2026 state of play.
What the Law Requires
- All qualifying tips must be passed to workers within one month of receipt
- Employers must have a written tips policy available to all workers
- Employers must maintain records of how tips are allocated for at least 3 years
- Workers have the right to request a tips statement from their employer showing the total and how it was split
Who Qualifies?
The law covers employees AND casual/agency/zero-hours workers in hospitality, leisure, gambling and barber/salon sectors. Agency workers placed through a staffing agency are included.
Tax on Tips: What Appears on Your Payslip
Tips are taxable income, regardless of how they're paid:
- Tronc schemes: A pooled distribution system run by an independent "troncmaster." Tips through a tronc are PAYE income but not subject to employee or employer NI if the troncmaster is genuinely independent.
- Direct employer payment: Tips paid through payroll are subject to income tax and NI as normal employment income.
- Cash tips from customers: Technically reportable as income in your Self Assessment, though enforcement is challenging. They are NOT subject to NI if received directly from the customer.
Frequently Asked Questions
My employer is still keeping a 10% admin fee from the service charge. Is that legal?
No — from October 2024, employers cannot retain any portion of tips or service charges for administration fees. This is explicitly prohibited by the Act. You should raise this as a formal grievance or contact ACAS.
What if my employer doesn't comply?
Workers can bring a claim to an Employment Tribunal. There is no cap on the compensation for tip theft claims. HMRC also has enforcement powers and can require employers to repay withheld amounts.