The Government has published its updated “draft Code of Practice on Fair and Transparent Distribution of Tips” (the Code) outlining the expectations of employers when managing the allocation of tips across the workforce. The Code is labelled as draft but is expected to come into force in October 2026. The Code and should be read alongside the enhanced employer obligations relating to the allocation of tips as set out in the Employment Rights Act 2025 (the ERA 2025). This is a reminder for employers in sectors such as hospitality and service industries where gratuities are commonplace of the forthcoming increase to employer obligations.
As a reminder, section 14 of the ERA 2025 requires employers to:
- Consult with staff when introducing or reviewing a tipping policy. This includes consulting with trade unions, elected representatives, or with employees directly if there is no applicable union.
- Carry out a consultation exercise at least every three years (or when the policy is reviewed, if sooner).
- Provide an anonymised summary of the consultation the entire workforce.
The Code – guidance for businesses
The Code sets out the “overarching principles” of Fairness and Transparency that employers must bear in mind when carrying out their obligations for the fair allocation of tips under the ERA 2025 and, in particular, when engaging in the relevant consultations with the workforce.
Some key take aways from the Code include:
- Consultation should be genuine, considered and conducted in good faith.
- If a particular method of distributing tips is considered fair by the workers affected by it, that may help a tribunal to conclude it to be considered fair and reasonable.
- Employers do not need to accept all proposals raised in the consultation, but should consider all views.
- Consultation may include meetings, group discussions and surveys, depending on the size and nature of the business.
Crucially, the Code provides some clarification and guidance as to what is to be expected of employers but is not a step-by-step guide on how a business should conduct their consultations in this area. Therefore, we suggest that a useful starting point would be to apply established principles from other consultations (such as during a redundancy exercise, TUPE transfers or fire and rehire processes) which businesses are likely to be practiced in conducting.
What does this mean?
The Code instructs that Employment Judges must have regard to the Code in applicable cases. It is important that business are aware of the Code and how to comply.
The Code emphasises that tip allocation should be fair, reasonable and clearly understood by staff. Employers will be expected to:
- engage in genuine and proportionate consultation;
- consider all views, including minority perspectives; and
- aim for broad workforce support for the chosen allocation method.
Employers will be expected to be able to prove they have engaged in a meaningful and non-discriminatory consultation. The intention being that a consultation which complies with the Code will help to create a fairer workplace and with tips being allocated in an indiscriminate way; allowing individuals from different job roles to be fairly represented when employers prepare policies which directly impact the workforce.
Practical steps for employers
To prepare for the changes, employers should consider:
- Reviewing existing tipping arrangements – are they clearly documented and consistently applied?
- Introducing (or updating) a formal tipping policy – setting out how tips are collected, distributed and recorded;
- Planning consultation exercises – tailored to the size and structure of the workforce (e.g. meetings, surveys or forums); and
- Keeping records – how will the business document the consultation process, feedback received and decisions taken?
Businesses operating across multiple sites or with mixed roles (such as front-of-house, service technicians and support staff) should take particular care to ensure that allocation methods are objectively justifiable and non-discriminatory.
Why this matters
For sectors where tips form a meaningful part of remuneration, these changes are likely to increase scrutiny from employees and regulators alike. The reputational and employee relations risks of getting it wrong should not be underestimated.
Hannah Pryce comments
The new tipping framework places transparency and employee engagement at the heart of workplace practices. Employers who take proactive steps now will be best placed to manage risk and maintain positive employee relations ahead of October 2026. Effective consultation can increase trust and confidence within a workplace and should be seen as an opportunity to better understand the inner workings of the workforce and what matters to the team.
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