The government has published its response to its consultation on the fair and transparent distribution of tips, gratuities and service charges, along with a revised statutory Code of Practice on fair and transparent distribution of tips.

Background

The Employment Rights Act 1996 (“ERA 1996”) was amended by the Employment (Allocation of Tips) Act 2023 (“Tips Act”) to introduce obligations on employers from 1^st October 2024 to ensure that workers receive tips, gratuities and service charges (“tips”) in full, and that they are allocated in a fair and transparent manner.

The Tips Act inserted section 27l into the ERA 1996, which requires an employer to have a written policy on how it deals with tips where qualifying tips are paid at (or are attributable to) the employer’s place of business on “more than an occasional and exceptional basis”.

The statutory Code of Practice on fair and transparent distribution of tips (“Code”) came into force on 1^st October 2024, covering the scope of qualifying tips and qualifying workers, fairness, transparency and how to address problems. The government also published non-statutory guidance to supplement the Code.

ERA 2025 Reform

On 24^th May 2024, Labour published its Plan to Make Work Pay and stated that it would strengthen the law to ensure workers would receive their tips in full and that workers would decide how tips are allocated. This is to be implemented by section 14 of the Employment Rights Act 2025 (“ERA 2025”), which will amend section 27l of the ERA 1996, and will provide that:

• Employers are to consult with trade union representatives or worker representatives (or directly with workers if there are no such representatives) about the tips policy.
• Employers are to review the tips policy at least once every three years and, at the same time, consult with trade union or worker’s representatives (or directly if there are no such representatives).
• Employers will be required to make an anonymised summary of the views expressed during the consultation, available to all workers at the place of business where the tips policy applies

Section 14 ERA 2025 is to be bought into force by commencement regulations made by the Secretary of State, expected to take place in October 2026.

Draft revised Code

A consultation commenced on 5^th February 2026, and closed on 1^st April 2026, and the government published its response to the consultation on 29^th June 2026.

As a result, the government published a draft revised Code to reflect the changes set out in the ERA 2025. The Code makes it clear that not all forms of tips will fall within the scope of the Tips Act. It clarifies that cash equivalent digital tipping (where a customer uses a mobile app or similar method to directly tip members of staff, bypassing the employer altogether), is a worker-received tip and therefore out of the Tips Act scope.

Factors to consider when assessing the fairness of tips allocation include:

• Determining those workers who should be included in tips distribution should be based on those directly involved in provided service at the relevant place of business, regardless of job title. For example, this may include those personally interacting with the customers, as well as those who physically prepare, handle or serve the food, drink, hospitality or experience.
• Employers should be cautious about entering into arrangements to allocate fixed minimum or guaranteed sum of tips to a named individual or category of worker, as these risk unfairly increasing the variability of tips for other workers.
• The revised Code clarifies that the type of role or work carried out may be relevant in relation to the factors that may be considered. For example, to determine the distribution as between front-of-house and backroom workers where this affects the extent to which the worker is involved in providing the service.
• The Employer must consider the operation of the scheme as a whole and the appropriate context. This includes recognition of the fact that if one worker or group of workers receives a higher share of tips, this will impact on the shares received by other workers or groups of workers.

Consultation requirements

Consultation should be genuine, considered and conducted in good faith, with sufficient time allowed for the process, and it must not be a paper exercise. Employers are not required to accept every suggestion made by workers, as long as they satisfy the fairness and transparency requirements.

Practical Tips

There are many things an employer can do to ensure it complies with the ERA 2025 and revised Code.

1. Ensure the workers have enough information to understand the proposals.  Supply them with a summary of the proposals in advance of the meetings/discussions, setting out the basis of the proposals, how the workers can consult with the employer, and FAQ’s and answers of the types of questions you think may arise.
2. Consult properly with all workers.  This could be in the form of meetings, group discussions, surveys and individual meetings, proportionate to the size, complexity and nature of the business. Ensure that a written record is kept of the consultation, including the process, the views expressed and the outcomes of the consultation.
3. Ensure the outcome of the consultation is fair. Do not rely on the majority vote, as this may not produce a fair outcome.  Take reasonable steps to ensure the views of minority groups and workers who are less likely to participate, are considered. Consider in advance of the consultation how you can overcome barriers to participation due to language, cultural background, disability, literacy, confidence, long-term absences, or the nature of the role.
4. Produce an anonymised summary, which is available to all workers, of the consultation process.

For further information or to discuss how this may affect your business, please get in touch with KKnox@ortolan.com or jjones@ortolan.com 

Useful links

To find out more about all of the proposed changes brought by the ERA 2025 on the tips Code, and for further guidance, please see the following useful links:

For the consultation outcome – Make Work Pay: strengthening the law on tipping see https://www.gov.uk/government/consultations/make-work-pay-strengthening-the-law-on-tipping

To read the statutory guidance – Distributing tips fairly, revised statutory code of practice, see https://www.gov.uk/government/publications/distributing-tips-fairly-revised-statutory-code-of-practice