A guest adds 12.5% to a bill of £180 on a card machine at the end of a Saturday service. Before October 2024, what happened to that £22.50 varied enormously from one restaurant to the next. Some passed on every penny. Some kept a share to cover card fees or administration. Some used it to top wages up to the minimum. Now only one of those is lawful.
The Act removed the discretion, not the complexity
The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024 and amended the Employment Rights Act 1996. In summary, an employer must ensure that qualifying tips, gratuities and service charges are allocated to workers fairly and paid in full, with no deductions except tax as required by law. Payment must be made no later than the end of the month following the month in which the tip was paid.
Several practices that were widespread became unlawful in one step. Deducting credit card processing fees from the tip pool. Withholding a percentage for breakages or till shortages. Retaining an administration charge. Using tips to make up an hourly rate to the National Living Wage, which was already prohibited, but is now unambiguous.
There is a statutory Code of Practice on Fair and Transparent Distribution of Tips, which employment tribunals must take into account. It is short, readable and worth an hour of your time, because the phrase doing the heavy lifting in the legislation is not "in full", which is straightforward, but "fairly", which is not.
Fair does not mean equal
The Code does not prescribe a formula. It requires you to use a clear and objective set of factors, apply them consistently, avoid unlawful discrimination and be able to explain the result. Factors it recognises as legitimate include the type of role, basic pay, hours worked during the period the tips were received, individual and team performance, seniority and length of service, and customer intention.
That last one matters more than operators expect. If a guest hands cash directly to a waiter with a clear intention that it is for that waiter, the position is different from a service charge added to every bill. Most restaurants deal with this by having a policy that treats cash and card tips consistently and says so in advance, rather than by litigating each occasion.
The genuine argument in almost every business is the kitchen. A back of house team never receives a tip directly and frequently does the work that generated it. Excluding the kitchen from the pool is not automatically unfair, but it is the allocation most likely to be challenged, and a restaurant that includes the kitchen should say why, in the policy, in plain terms. So should one that does not.
Agency workers count. Tips must be allocated to agency workers who work at the premises on the same fair basis, which is a change many operators missed and which reaches the business through the agency.
The paperwork is the enforceable part
If your business pays tips on more than an occasional and exceptional basis, three obligations bite.
- You must have a written policy on how tips are dealt with, and make it available to all workers at the place of business
- You must keep records of how much was received and how it was allocated, going back three years
- A worker can make a written request for the records relating to them, once in any three month period, and you must respond within four weeks
That is the machinery a tribunal will look at. A restaurant with a clear policy, consistent allocation and three years of records is in a strong position even if somebody disagrees with the split. A restaurant with none of those is in trouble regardless of how generous it has actually been.
A worker can bring a claim to an employment tribunal within twelve months for failure to allocate fairly, and within two years for a failure to pay. Remedies include ordering a revised allocation and compensation of up to £5,000 for financial loss.
Tronc is a tax structure, not a get out
A tronc is an arrangement where an independent person, the troncmaster, decides how tips are distributed. It predates the Act by decades and it exists for a tax reason: where distribution is genuinely outside the employer's control, payments are subject to PAYE income tax but not to National Insurance for either the employer or the worker. With employer Class 1 National Insurance at 15% above a secondary threshold of £5,000 from April 2025, that is a real saving for both sides.
Two things to be clear about. A tronc does not exempt you from the Act. The obligations on fairness, payment in full, the written policy and the records still apply, and you remain responsible for the arrangement being fair even though you are not deciding the split.
And the independence must be real. If the general manager who sets the rota also sets the tronc allocation under instruction from the owner, HMRC may well conclude the employer is allocating the money and apply National Insurance to the lot, with interest. The troncmaster should be chosen by the staff or genuinely independent, should keep their own records, and should not be the person who controls pay.
Write the policy for the two audiences it has
Your tips policy is read by staff who want to know what they will earn, and potentially by a tribunal that wants to know whether you thought about it. Both are served by the same document.
Say what is included: card service charge, cash tips, any tip added through a delivery platform. Say how the pool is formed and who is in it, including kitchen, kitchen porters and agency staff. Say the basis of allocation, usually hours worked in the period with any weighting by role stated numerically. Say when it is paid and on what payslip line. Say who the troncmaster is if there is one. Say how someone raises a question about it.
Then tell the guest. Under consumer protection rules a service charge must be genuinely discretionary if you describe it as discretionary, and the total price including any mandatory charge has to be made clear up front. Since the unfair commercial practices provisions of the Digital Markets, Competition and Consumers Act 2024 came into force in April 2025, drip pricing has been squarely in the Competition and Markets Authority's sights. A line on the menu saying what the service charge is, that it is optional, and that all of it goes to the team, does more for your front of house than any amount of training on how to explain it at the table.
Where this shows up in the game
Restaurants are part of Business Baron's full game, and cafés and pubs are free to run. Employment in the game runs against the law in force that month, and the people you employ are a relationship with rules rather than a cost line. A policy the team thinks is unfair costs you the way staff problems usually do: slowly, and then in a resignation.