The Government has published its response to consultation on the allocation of tips together with an updated draft Code of Practice, introducing new obligations for employers ahead of changes due to take effect in October 2026. These reforms build on the existing legal framework governing tips and aim to ensure that tip allocation remains fair, transparent and subject to employee consultation.
Under the new provisions contained in the Employment Rights Act 2025, employers who operate a tipping policy will be required to consult with staff when establishing and reviewing their policy. Where a recognised trade union or elected employee representatives exist, consultation must take place through those representatives. In businesses without representatives, employers will need to consult directly with employees.
Importantly, consultation will not be a one-off exercise. Employers must revisit the process whenever the tipping policy is reviewed, with reviews required at least every three years. Employers will also need to provide workers with an anonymised summary of the consultation process and feedback received. The updated draft Code emphasises that consultation should be genuine, proportionate, inclusive and transparent. While employers are not obliged to accept every suggestion put forward by employees, they should carefully consider all views and aim to achieve broad agreement that the method of distributing tips is fair and reasonable. The Code also highlights the importance of ensuring that minority views are considered and that tip allocation practices do not inadvertently disadvantage particular groups of workers.
Employers are encouraged to use a variety of consultation methods, including staff meetings, focus groups and surveys, depending on the size and nature of the business. The Code further recommends maintaining written records of the consultation process, including the issues discussed, feedback received and the rationale behind any decisions made. These records could prove valuable if an employer’s tipping arrangements are later challenged.
One notable point is that evidence of worker support for a particular tip distribution method may assist an employer in demonstrating that its approach is fair and reasonable should a dispute reach an Employment Tribunal. This underlines the importance of meaningful engagement with staff rather than treating consultation as a mere administrative exercise.
With the reforms expected to come into force in October 2026, employers in the hospitality, leisure and service sectors should begin reviewing their existing tipping arrangements now. Updating policies, planning consultation exercises and ensuring appropriate record-keeping processes are in place will help businesses prepare for compliance and minimise the risk of future disputes.
The key takeaway is that the focus of the new regime is not just on how tips are distributed, but on ensuring workers have a meaningful voice in determining what constitutes a fair allocation system. Employers who engage openly with staff and document their decision-making process are likely to be best placed to demonstrate compliance with the new requirements.
For more information, please contact our Employment Team on 0345 646 0406 or fill in our online enquiry form and a member of the team will be in touch.