The “Tipping Boost”: What the Changes Mean for Staff

Recent changes to the law around tips and service charges are often referred to as a “tipping boost”. The aim is to ensure that tips left by customers are passed on to workers rather than being retained by businesses.

These changes affect how tips, gratuities, and service charges are handled and give workers greater clarity over what they should receive.

New Code of Practice Strengthens Protection for Workers’ Tips

The government introduced the Code of Practice on the fair and transparent distribution of tips that will have legal effect under the Employment (Allocation of Tips) Act 2023.

The updated Code of Practice will be statutory and have legal effect, meaning it can be introduced as evidence in an employment tribunal.

The Act and secondary legislation make it unlawful for businesses to hold back service charges from their employees, ensuring staff receive all of the tips they have earned.

The measures are expected to come into force on 1st October 2024, once they have been approved by Parliament.

Many hospitality workers rely on tips to top up their pay and are often left powerless if businesses do not pass on service charges from customers to their staff.

What Is the “Tipping Boost”?

The term “tipping boost” refers to new legal protections that strengthen workers’ rights to receive tips left by customers.

Under the updated rules, employers are required to pass on tips and service charges in full, rather than using them to cover business costs.

How Tips and Service Charges Are Handled

Tips may be paid in a variety of ways, including cash, card payments, or through a discretionary service charge.

The rules apply regardless of how the tip is collected, and employers must ensure that any tips intended for staff are distributed fairly.

Transparency and Fair Allocation

Employers are expected to operate a clear and transparent system for allocating tips.

This means workers should be able to understand:

• How tips are collected
• How they are shared between staff
• When they are paid

Tax and Payroll Treatment of Tips

The way tips are paid can affect how they are taxed.

Some tips may be processed through payroll and subject to PAYE, while others paid directly by customers may be taxed differently. The tax position depends on how tips are collected and distributed.

Why the Changes Matter

The “tipping boost” is intended to give workers confidence that tips left by customers will reach them.

Clear rules and transparency help reduce disputes and ensure everyone understands how tips are handled.

Government Guidance on Tips and Gratuities

Government guidance explains workers’ rights and employers’ responsibilities in relation to tips, gratuities, and service charges on
GOV.UK.

Are Tips Being Passed on Correctly?

Whether tipping arrangements comply with the new rules will depend on how tips are collected, shared among staff, and recorded in practice. For hospitality businesses in Fulham Broadway and nearby areas such as Parsons Green and Chelsea Harbour, CIGMA Accounting can review existing arrangements and help ensure they meet the updated legal and HMRC requirements.