Tipping law changes: is your hospitality or leisure business ready for December 2026?
Tips, gratuities, and service charges remain an important part of reward arrangements across the hospitality and leisure sector. They can also be a source of uncertainty where workers do not understand how amounts are allocated or where practices differ between sites.
Over the last two years, employers have become accustomed to greater transparency requirements in relation to tipping arrangements. Further reforms expected to take effect at the end of 2026 and will build upon those obligations by introducing new consultation requirements and increasing scrutiny of how tipping policies are developed, reviewed and communicated.
The current obligations
Since 1 October 2024, employers have been required to deal fairly and transparently with qualifying tips, gratuities and service charges that they control or significantly influence. In broad terms, qualifying tips must be distributed fairly amongst workers and passed on in full, subject only to lawful deductions such as tax and National Insurance.
The legislation also extends protection to agency workers and places obligations on employers where tipping forms a regular part of the business.
Employers are required to:
- Distribute allocated tips within the statutory timeframe
- Maintain records relating to tips and their allocation
- Respond to qualifying information requests from workers
- Maintain a written tipping policy where qualifying tips are received on more than an occasional basis.
The written policy should explain how tips are received, allocated, and distributed in practice. By contrast, cash tips given directly to an individual worker without employer control or influence will generally fall outside the statutory framework.
What is changing by the end of 2026?
The Employment Rights Act 2025 introduces additional obligations designed to give workers a greater opportunity to influence how tipping arrangements operate in their workplace. The most significant development is a new requirement to consult workers when introducing, reviewing, or materially revising a written tipping policy.
Where a recognised trade union or elected worker representatives exist, consultation should ordinarily take place through those representatives. In other workplaces, affected workers will need to be consulted directly.
Consultation must be genuine and undertaken before decisions are finalised. Simply announcing a policy after the relevant decisions have already been taken is unlikely to satisfy the purpose of the new requirements. Employers should ensure there is a genuine opportunity for feedback and that any views received are properly considered as part of the decision-making process.
Employers will also be required to make available an anonymised summary of the consultation process and the views expressed by workers. Written tipping policies must be reviewed at least once every three years, with consultation forming part of that review process.
This transforms a tipping policy from a static compliance document into an ongoing governance obligation requiring regular review, worker engagement and documented decision-making.
At the time of writing, the Government has also proposed revisions to the statutory Code of Practice. Businesses should therefore monitor developments closely and review the final version of the legislation and accompanying Code once published. Current indications are that the changes are expected to take effect towards the end of 2026, subject to Parliamentary approval.
Why does the revised Code of Practice matter?
Alongside the legislative changes, the revised Code of Practice is expected to provide additional guidance on the factors employers should consider when assessing fairness and transparency in the allocation of tips. The revised guidance is expected to address worker consultation, communication of tipping arrangements and factors that may be relevant when determining how tips are allocated between different categories of worker.
Although the legislation preserves flexibility for employers, businesses should be able to explain and justify how their arrangements operate and why they consider them to be fair in the circumstances of their particular workplace.
Is there a greater emphasis on compliance?
In short - Yes.
The existing framework focuses primarily on ensuring that workers receive tips fairly, transparently and within the required timescales. The forthcoming reforms place greater emphasis on the process by which tipping arrangements are determined and reviewed.
Employers will increasingly need to demonstrate:
- When policies were reviewed
- Who was consulted
- What feedback was provided
- How that feedback was considered
- Why particular decisions were ultimately reached.
Maintaining records of consultation, policy reviews and management decisions will be an important part of demonstrating compliance. Employers should be able to produce a clear audit trail showing that worker views were sought and genuinely considered before policies were adopted or amended.
This may be particularly important for businesses operating across multiple sites, employing seasonal workers, relying heavily on agency staff or operating different allocation arrangements in different locations.
What about tronc arrangements?
Many hospitality businesses operate ‘tronc’ arrangements to facilitate the distribution of tips. However, employers should not assume that the use of an independent troncmaster removes the need for compliance with wider legal obligations.
Even where an independent tronc structure exists, employers should ensure that their written policy accurately reflects how tips are managed in practice and that appropriate consultation takes place where required. Consistency between policy, process and day-to-day operation will be increasingly important.
What are the risks of getting it wrong?
Workers already have statutory rights in relation to qualifying tips and may bring claims where they believe the legislation has not been complied with.
In appropriate cases, an Employment Tribunal may make declarations, require changes to allocations, and/or award compensation. Failures to comply can also result in management time, employee relations difficulties, and reputational damage as a result of public Employment Tribunal decisions.
As scrutiny of tipping arrangements increases, employers should expect greater focus on documentation, transparency, and evidence of compliance. Clear records, consultation materials, and documented decision-making processes may be just as important as the substance of the policy itself.
What should businesses do now?
- Audit every route through which tips, gratuities, and service charges are received, including card payments, apps, room charges and event packages.
- Check that qualifying tips are being paid and allocated in accordance with statutory requirements.
- Review allocation criteria to ensure they are objective, consistently applied and free from discriminatory impact.
- Confirm that the written tipping policy accurately reflects day-to-day practice at every site.
- Ensure tipping records are complete, secure and capable of responding to statutory information requests.
- Identify who within the business is responsible for the ongoing review and approval of tipping arrangements.
- Develop a consultation process that can accommodate seasonal, part-time and agency workers where appropriate.
- Establish a timetable for future policy reviews and compliance checks.
- Train managers responsible for implementing or communicating tipping arrangements.
- Record consultation feedback, decisions taken and the reasons supporting those decisions.
- Review any tronc arrangements to ensure they remain aligned with the written policy and operational practice.
How can Fraser Dawbarns help?
Our employment law team can review your current tipping arrangements, draft or update a compliant written policy and help you identify where practice has drifted from the paperwork. We can also advise on fair allocation factors, agency workers, multi-site arrangements, tronc systems and the handling of individual requests for tipping information.
As the new consultation duty approaches, we can help you design a proportionate process, prepare communications and consultation materials, and document the outcome. If concerns or complaints arise, early advice can often prevent an operational issue from becoming a wider workplace dispute.
Hospitality and leisure businesses already have plenty to manage. Taking action before the new rules commence will give owners and managers time to consult properly, correct any gaps and give their teams confidence that tips are being handled fairly. Please contact our employment law team if you would like advice tailored to your business.
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This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances. Fraser Dawbarns LLP is always happy to provide such advice.