Preparing a Tipping Policy

Coming into effect 1 July 2024, The Employment (Allocation of Tips) Act 2023 has been a major topic of conversation throughout the hospitality sector. In practice, this legislation isn’t changing much and is effectively codifying common practice when it comes to managing tronc (tips and gratuities) and increasing the certainty for both employers and staff.

The new legislation will require operators to be stricter when it comes to how they operate tronc. It seeks to ensure that 100% of qualifying tips, gratuities and service charges paid at or attributable to a place of business are distributed fairly between employers and workers. Employers are no longer able to take administrative or processing fees from tips or use them to pay for the tronc service (i.e., Troncmaster or supporting software). Where tips are paid regularly, employers must have a written tipping policy available to staff upon request which includes how tips are allocated. Tips will also need to be allocated no later than the end of the month after the tips were paid.

It is the responsibility of the employer to make a full and complete policy available to workers. A robust tipping policy should include:

• How tips are accepted, allocated and distributed
• Distribution methods
• Maintaining records and data protection
• Dispute resolution

How tips are accepted allocated and distributed

A tipping policy must detail any tronc services employed, rules around allocation and how tips are distributed. It should also include the processes employers have in place to ensure tips are handled fairly and transparently.

These include clear reasoning for the allocation and distribution of tips. The government’s draft code of practice provides guidance on the factors employers might consider when allocating tips (although this is only intended to be illustrative), such as:

• Type of role or work. For example, distribution can vary between those working front of house and back of house
• Basic pay (and how workers are engaged)
• Individual and/or team performance
• Seniority or level of responsibility
• Length of time served with the employer
• Customer intention

Distribution methods

Employers have the option to pay tips via a third party or as part of the normal payment cycle. Agency staff are also eligible for consideration around tip allocation.

Distribution with a troncmaster

If payments are made through a tronc, then the troncmaster (the person managing tronc) may be required to run a payroll and establish a PAYE scheme for tips and gratuities. Having a troncmaster in place can also impact whether tronc is subject to national insurance contributions (NIC), HMRC provides full guidance on this. If an employer’s tipping policy details how tronc is distributed, HMRC could interpret this as being employer owned or managed, rather than managed by a troncmaster, and therefore not subject to NIC relief. Since an employer documenting everything might result in the NIC relief being questioned, operators’ policies should state that distribution is kept fair through the use of a troncmaster and ensure distribution rules are made available to employees separately by the troncmaster.

Dispute resolution

Distribution tips can be a contentious area. Tipping policies should clearly document the processes in place to resolve any disputes around tips and avoid them from escalating.

Maintaining records and data protection

The Employment (Allocation of Tips) Act 2023 includes obligations for employers regarding the collection and record-keeping requirements around tronc. Under the new legislation, employers must record the qualifying tips received, the location they were received, and the amount allocated to each employee. These records should be kept for a minimum of three years and are subject to data protection legislation.

Employees also have the right to request information on the total tips collected and distributed, and how much they’ve personally received over the last three years. They can make one request in any three month period.

A well-structured tipping policy not only ensures compliance with legal requirements but also supports a fair and transparent work environment. By clearly outlining how tips are managed, employers can help maintain employee satisfaction and improve service quality, ultimately benefiting both staff and customers.

Once a tipping policy is created, it must be made available to all staff. Employers can choose how the tipping policy is made available, for example emailed to all employees, clearly visible on a noticeboard in a staff room, on an intranet or self-service engagement app.

Want more? Discover these resources:

• Preparing a Tipping Policy
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