Employment Rights Act 2025: tipping reforms

The Government has published its response to the recent consultation on strengthening the law on workplace tipping, together with a draft revised Code of Practice, implementing reforms under the Employment Rights Act 2025 that will make it mandatory for employers to consult with workers when developing or revising their written tipping policies. These changes are due to take effect, subject to Parliamentary approval, in October 2026. 

While the reforms do not alter the current requirement under the Employment (Allocation of Tips) Act 2023 to pass tips on to workers in full, they will introduce new procedural requirements on employers in the hospitality sector and other businesses that receive customer gratuities. Employers will increasingly need to demonstrate that tipping arrangements have been developed through an open and transparent process involving workers. 

Worker consultation

The most significant change introduced by the ERA 2025 is a new requirement for employers to consult workers when introducing or revising tipping policies.

The Government believes that workers should have a meaningful opportunity to influence how tips are distributed. Employers will therefore be expected to seek workers’ views, keep records of consultation and review tipping arrangements periodically – once every three years as a minimum. Consultation must be carried out with trade union or workers’ representatives, or directly with the workers if there are no such representatives.

For many organisations, this will require a more formal approach than is currently adopted. Businesses that have historically determined tipping arrangements without employee engagement may need to introduce consultation processes and maintain an audit trail of decisions.

Updated Code of Practice

Alongside the consultation requirement, the current statutory Code of Practice on fair and transparent distribution of tips will be updated. The Government’s intention is to preserve flexibility for employers rather than adding unnecessary detail or length to the Code. 

The draft revised Code provides greater clarity on factors to consider when assessing fairness, including how to determine which workers are included and the distribution of tips according to the type of role or work carried out by the worker. It highlights the importance of considering the impact of tipping policy on different groups of workers, and sets expectations around consultation and communication. 

The Government has deliberately avoided imposing a prescribed method for allocating tips. Instead, employers will continue to have flexibility to adopt arrangements that reflect their business model, provided those arrangements are fair and transparent. 

Workers should be able to understand how tips are collected, distributed and allocated. Employers will therefore need to ensure that policies are clearly communicated and readily accessible. Although there is no proposal to require employers to publish tipping arrangements to customers, businesses will be encouraged to be more open about their approach. 

What will this mean for employers? 

The reforms do not fundamentally change the existing legal position on tipping. Employers will still be required to pass tips, gratuities and service charges to workers without deductions and within the prescribed timescales. 

However, the proposals are likely to increase the administrative burden associated with compliance. Employers will need to: 

• establish formal consultation procedures, proportionate to the size, complexity and nature of the business 

• review and update tipping policies regularly, at least once every three years 

• keep a written record of the consultation process and outcomes, with an anonymised summary made available to all workers 

• ensure managers understand the revised requirements, and 

• monitor whether arrangements remain fair across different worker groups, taking care not to rely solely on the views of the largest or most vocal workers. 

Businesses that operate tronc arrangements or complex tip-sharing systems may wish to review those arrangements in advance of the reforms to identify any areas that could attract criticism. 

Next steps

The Government has laid the draft revised Code of Practice before Parliament. Subject to parliamentary approval, commencement regulations will bring the changes into force. 

Implementation is currently expected in October 2026, although this remains subject to confirmation. The Government has also indicated that further non-statutory guidance will be published, with worked examples, to help employers and workers understand the new requirements. 

The Birketts view

Currently, if an employer has not fairly allocated and paid tips to workers in accordance with the existing rules, a worker can present a complaint to the employment tribunal up to 12 months from the date of the failure. If a complaint is well founded, the tribunal must make a declaration to that effect and may award compensation to the worker of up to £5,000.  

The reforms introduced under the ERA 2025 represent an evolution of existing tipping law but will not change the current enforcement mechanisms or penalties. Employers will retain flexibility over how tips are distributed, but there will be a stronger focus on consultation and transparency. For employers, early preparation will help ensure that tipping arrangements remain compliant and are capable of withstanding scrutiny when the new rules take effect.