Tipping towards greater transparency – what employers need to know about the latest tipping changes

Tips are back on the agenda. Earlier this year, we reported on the government’s post-Employment Rights Act 2025 consultation into strengthening the law on tipping. Since then and following calls from unions for an earlier “flawed” draft Code of Practice to be withdrawn to allow for proper consultation, the government has launched a consultation into a revised statutory Code of Practice on the fair and transparent distribution of tips. 

The revised Code and the related Employment Rights Act 2025 (ERA) tipping reforms are expected to come into force later this year, with the consultation closing on 29 September 2026. As time will be tight between publication of the final Code and the commencement date, affected employers (particularly in hospitality, leisure and other customer-facing sectors) may want to revisit tipping arrangements now to ensure they are ready for the new rules.

What is changing?

As a reminder, the ERA contains provisions which will, once in force, expand on the tipping reforms that were first introduced in October 2024 to ensure the fair and transparent allocation of all tips and gratuities. One of the key requirements under the 2024 reforms was a new obligation for relevant employers to have a written policy in place governing the allocation of tips. 

So, what will be different under the ERA and the revised Code when they take effect later this year? 

Changes under the ERA

The ERA will introduce requirements for:

• Consultation – employers to consult with recognised trade unions or worker representatives (or where no such representatives exist, with affected workers directly) before introducing a written tipping policy. 
• Periodic policy reviews – employers to review their tipping policy at least once every three years and undertake a further consultation exercise as part of that review.
• Greater transparency around consultation feedback – employers to make and publish an anonymised summary of consultation responses available to workers at the relevant place of business. 

The revised draft Code has been updated to reflect these additional requirements under the ERA. 

Changes under the Code

As well as the necessary changes to reflect the new ERA requirements, the government has taken the opportunity to amend the Code to provide additional practical guidance on how employers can operate fair and transparent tipping arrangements in practice. These changes include guidance on which payments qualify as tips and which workers should be included in tip distributions. In particular, it emphasises that employers should look at the substance of a payment rather than the terminology used and focus on workers' contribution to the overall service provided. While the Code stops short of prescribing a particular allocation model, it encourages employers to think carefully about who contributes to the customer experience (e.g. those who personally interact with customers or physically and personally prepare, handle, serve or otherwise provide food, drink hospitality or experience) and to be able to justify why certain groups of workers are included in, or excluded from, tip distributions. This may require many businesses to revisit long-standing tipping practices, with a view to ensuring that they can clearly explain the rationale behind their approach to allocation of tips. 

The draft Code also provides welcome clarification on the factors that may justify different allocations of tips. In particular, it recognises that workers may contribute to the customer experience in different ways and that factors such as a worker's role, responsibilities, or the work they undertake can be taken into account when determining tip shares. For example, employers may decide that workers with greater customer interaction, supervisory responsibilities or specialised skills should receive a different allocation, provided the approach can be objectively justified. 

Importantly, the Code emphasises that fairness should be assessed by looking at the operation of the tipping arrangement as a whole, rather than focusing on individual outcomes in isolation. This gives employers some flexibility to design arrangements that reflect the needs of their business, but also places greater emphasis on being able to explain and defend the rationale behind those arrangements. 

Key Takeaways

For many employers, the key takeaway is that a tipping model does not have to deliver identical outcomes to be fair, but it should be underpinned by clear and consistent reasoning.

Taken together, these changes under the ERA and the draft Code represent a notable shift from tipping as an operational issue to a governance issue. While employers will retain discretion to decide how tips are allocated, the revised consultation requirements make clear that those decisions should be informed by meaningful engagement with workers. Consultation is no longer presented as a one-off exercise carried out before a policy is introduced. Instead, it is intended to become an ongoing process of review, engagement and justification.

In practice, the consultation process is likely to extend beyond simply gathering views from employees. Employers will need to provide workers with sufficient information to understand the proposed arrangements, consider feedback from different groups of workers and maintain records demonstrating how consultation was carried out. The requirement to publish an anonymised summary of responses is also likely to increase scrutiny of tipping decisions, as workers and trade unions will be able to see not only the outcome of consultation but also the issues raised during it. It is not currently set out anywhere in the Code what form such an anonymised summary should take.

That said, the new requirements could present an opportunity as well as a compliance challenge. A transparent and well-managed consultation process may help build trust in tipping arrangements, improve employee engagement and reduce the likelihood of disputes about how tips are distributed.

What should employers be doing now?

The revised Code is not in force yet, but the consultation period is a good opportunity to take stock of existing arrangements and look ahead to what changes may be needed. In particular, employers should think about reviewing:

• policies to check whether tipping policies are clear and easy for workers to access and to start considering what changes may be required when the policy is up for review;
• allocation practices to check how tips are currently allocated and whether the approach can be justified as fair and transparent, taking into account the new guidance in the draft Code;
• how they will approach consultation and what the likely areas of challenge from unions or workplace representatives might be. 

A well-run consultation process, supported by clear records and transparent communication, is likely to be just as important as how tips are ultimately allocated. Those employers that can demonstrate they have listened to, considered, and balanced competing views will likely be in a much stronger position to show that their arrangements are both fair and transparent.

If you would like to discuss how these developments may affect your business or would like help reviewing your tipping arrangements, please get in touch.