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For hospitality operators, tipping has already become a much more formal area of employment compliance.
Since October 2024, employers have been required to ensure that qualifying tips, gratuities and service charges are passed on to workers in full and allocated fairly and transparently. Where tips are received on more than an occasional or exceptional basis, businesses must also have a written tipping policy setting out how they are handled.
Now, further changes under the Employment Rights Act 2025 are set to strengthen those requirements, with a much greater emphasis on involving employees in how tipping arrangements are developed and reviewed.
For hospitality businesses, the message is clear: having a tipping policy sitting on file will no longer be enough. Operators will need to consider how that policy has been developed, how effectively it has been communicated and whether they can demonstrate meaningful consultation with their workforce.
What is changing?
The Employment Rights Act introduces a new requirement for employers to consult workers when developing their written tipping policy.
Where recognised trade union or other worker representatives are in place, consultation should take place with them. Where there are no such representatives, employers will need to consult directly with the workers likely to be affected.
Tipping policies will also need to be reviewed at least once every three years, with consultation forming part of each review. Following consultation, employers will be required to make an anonymised written summary of the views expressed available to workers at the relevant place of business.
This represents an important shift. While the existing statutory Code of Practice already encourages employers to consult with workers, the Employment Rights Act puts consultation on a statutory footing.
For operators with multiple sites, large numbers of casual workers or established tronc arrangements, that could require considerably more thought than simply updating a written policy.
What does meaningful consultation look like?
Consultation should not be approached as a box-ticking exercise.
The intention behind the reforms is to give workers a greater voice in decisions about how tips are allocated. Hospitality businesses should therefore consider how they will give affected employees a genuine opportunity to understand the proposed arrangements, express their views and provide feedback.
That could include communicating clearly about how tips are currently distributed, explaining the factors used to determine allocation and giving employees an appropriate opportunity to comment on proposed changes.
Importantly, employers should also think about how they evidence that process.
Maintaining appropriate records of consultation, feedback received, changes considered and the final policy adopted could become an important part of demonstrating compliance should arrangements subsequently be challenged.
Communication matters too. A policy may be technically compliant, but if employees do not understand how their tips are calculated or why different workers receive different allocations, dissatisfaction and disputes can quickly follow.
Time to review your tipping arrangements
For hospitality operators, this is a useful opportunity to look beyond the written policy itself and consider whether tipping arrangements remain appropriate across the business.
That means reviewing how tips, gratuities and service charges move from the customer through to employees, who has responsibility for allocation and whether the criteria being applied are fair, transparent and consistently understood.
Where a tronc arrangement is used, businesses should consider whether responsibilities are clearly defined and whether the arrangement continues to operate as intended.
For groups operating across multiple locations, consistency is another important consideration. Different working practices may have developed between sites over time, particularly where local management teams have some discretion over tipping arrangements.
Understanding those differences now can help identify potential compliance issues before they become employee disputes.
More than an HR issue
As we highlighted in our previous article on the changing labour cost landscape, employment reforms should not be viewed solely through an HR lens.
Tips can interact with payroll processes, financial controls and wider workforce costs. Where arrangements are unclear or inconsistently applied, the implications can extend beyond employee relations.
Finance teams should therefore understand how tips are collected, allocated and recorded, and whether the business has appropriate controls around those processes.
There is also a broader governance question. If an employee, auditor or other stakeholder asked the business to explain how its tipping arrangements work, could it demonstrate not only that a policy exists, but that the policy is being followed consistently in practice?
That distinction is becoming increasingly important as expectations around transparency and workforce governance continue to rise.
Preparing for the changes
The Government is currently consulting on a revised statutory Code of Practice covering the fair and transparent distribution of tips, with the consultation due to close on 29 September 2026. Employers should therefore continue to follow the existing statutory Code while monitoring the final requirements.
However, businesses do not need to wait before reviewing their arrangements.
Hospitality operators can start by looking at their existing tipping policy, identifying who will need to be involved in consultation and reviewing whether current processes provide a clear audit trail from the collection of tips through to their allocation to workers.
Businesses should also consider how they communicate tipping arrangements to new and existing employees and whether managers understand their responsibilities.
The direction of travel is clear: transparency, consultation and demonstrable compliance are becoming increasingly important.
For operators that prepare early, the changes provide an opportunity to strengthen existing processes and give employees greater confidence in how tips are handled. For those that leave the review until the last minute, what appears to be a relatively straightforward policy change could prove considerably more complicated.
The next step
If you would like to discuss how the changes to tipping legislation could affect your business or would like support reviewing the financial and reporting implications of your current arrangements, please get in touch with Martin Jones, partner, or a member of our hospitality team.
