If your business operates in hospitality or another sector where tips or service charges are commonplace, you should already be familiar with the rules around fair and transparent tipping.
The Government has launched a consultation on a revised Code of Practice on the Fair and Transparent Distribution of Tips.
The proposed changes build on the existing tipping legislation, strengthening the rules and introducing further requirements for employers.
So, what could be changing and what should employers be thinking about now?
What Are The Current Rules on Tips?
The Employment (Allocation of Tips) Act 2023 introduced legal requirements around how employers handle qualifying tips, gratuities and service charges.
Employers are already required to pass qualifying tips on to employees without deductions, except in very limited circumstances. They must also ensure that tips they control or significantly influence are distributed fairly and transparently.
The revised Code builds on these existing requirements, with one of the most significant proposed changes being a new requirement for employers to consult employees when developing or reviewing their tipping policies.
For employers, this means tipping policies can no longer simply be something created behind the scenes and handed to employees once complete.
What Could The New Tipping Code Mean for Employers?
The draft strengthens guidance around which employees should be considered as involved in providing the relevant service when deciding how tips should be allocated.
Employers are discouraged from arrangements that guarantee fixed proportions of tips to particular employees, and the revised guidance highlights the importance of considering equal pay when choosing the factors used to determine how tips are distributed.
Importantly, employers and tribunals are encouraged to consider the fairness of a tipping arrangement as a whole, rather than looking at individual examples in isolation.
And changing the name doesn't change the rules!
The draft makes clear that businesses should not simply re-label service charges in an attempt to avoid the legislation.
The Government is also encouraging employers to make their tipping policies available to customers, although this would not be a legal requirement under the proposed Code.
What Should Employers Do Now?
The revised Code is still subject to consultation, so there's no need to start rewriting everything. Employers should continue following the existing statutory Code while the consultation takes place.
And if you already have a tipping policy in place, this isn't about starting again.
It's about checking that your existing approach remains fair, transparent and compliant, and understanding what may need to change when the revised Code comes into force.
Ask yourself:
Do we have an up-to-date written tipping policy?
Do our employees understand how tips are allocated and distributed?
Could we clearly explain why our current allocation method is fair?
Are the factors we use to allocate tips objective and non-discriminatory?
Do we keep appropriate records?
How would we involve employees when our tipping policy is next reviewed?
Are our managers confident explaining the policy and responding to questions about it?
Already An Inspired HR Client?
If you're a retained Inspired HR client operating in a relevant sector, we have already provided policies to support you with the existing tipping legislation.
As the revised Code progresses, we'll continue to keep you informed about what changes and whether any updates are required.
If you're not a retained client and don't currently have an appropriate tipping policy in place, we can help with that too. Our PAYG HR support gives you access to Inspired HR when you need it, whether you need a policy putting in place or advice on how the rules apply to your business.
What Happens Next?
The Government's consultation on the revised Code is open until 29th September 2026. The Government expects the new Employment Rights Act 2025 requirements and revised Code to take effect later in 2026, subject to parliamentary approval.
Until then, employers should continue to follow the existing statutory Code.
Want To Stay Ahead Of Employment Law Changes?
This isn't the only area of employment law changing.
Our next Employment Law & HR Trends webinar takes place on Wednesday 23rd September, when Nikki Masterman will be joined by employment law solicitor Kat Moody.
This time, they'll be focusing on neurodiversity in the workplace, including employers' legal responsibilities, reasonable adjustments and the practical steps businesses can take to support neurodiverse employees.
The webinar is free and open to all businesses, HR teams and senior leaders. Register here.