Where are we now? Nine months on from the tipping legislation

1 October 2024 marked a significant turning point for the UK hospitality sector. For the first time, legislation was introduced that not only addressed how tips, gratuities, and service charges are taxed, but also regulated how these funds are distributed. The goal: to ensure that every eligible pound (excluding tax) reaches hospitality workers in a way that is both fair and transparent.

What’s changed and what hasn’t

Many operators were already passing on all tips and service charges to their teams, excluding only credit card processing fees. For them, the new rules may have seemed like a formalisation of existing practices. Others, however, faced a last-minute scramble to prepare and some are still navigating the implications.

Even for well-prepared businesses, the tipping legislation has introduced new challenges. For example, some operators had historically smoothed out tip payments across the year to provide more consistent earnings for staff. Despite no widespread demand from workers to change this, the legislation has made this more difficult, and in some cases, no longer possible. Businesses that didn’t review their wider pay structures before October have found themselves more exposed to increased employment costs, particularly employer National Insurance Contributions, with less flexibility to adapt.

Action: If you haven’t already, now is the time to review your tronc arrangements and ensure they align with the new legal requirements.

The challenge of “fairness” and “transparency”

The concepts of fairness and transparency are central to the tipping legislation but they are also inherently subjective, based on standards and principles rather than black-and-white points. Different team members may have different views on what’s equitable, and without clear legal precedents, businesses are left to interpret these principles in good faith. With no established case law or legal precedent to guide decisions, HR teams are increasingly fielding complaints that lack definitive answers. The risk is growing that many of these disputes will escalate to Employment Tribunals, an outcome that seems not only likely but inevitable as the sector grapples with the practical implications of the legislation.

Some operators have responded by adopting a flat distribution model where all staff receive the same share regardless of role, experience, or performance, believing that simplicity will automatically equate to fairness. While this may seem equitable, it can have unintended consequences such as reduced motivation among high-performing team members and a sense of entitlement among others. In some cases, this has even impacted guest experience and, ultimately, the volume of tips received.

The Code of Practice does allow for differentiation based on role, responsibility, and performance provided it’s done clearly, objectively, consistently and reasonably.

Action: Ensure your distribution model is objective, consistent, and clearly documented. Transparency doesn’t mean uniformity.

Transparency vs. privacy

Another area of confusion is what “transparency” really means. Many workers have taken the word transparency to mean that they are entitled to know and see everything, including details such as the individual compensation of others. While workers have a right to understand how tips are allocated, this must be balanced with data protection obligations. Sharing detailed breakdowns that identify the individual earnings of others, or which provide a sufficient level of detail to allow a worker to calculate the earnings of another, can breach privacy laws and operators need to exercise caution.

The Employment (Allocation of Tips) Act 2023 is clear: while workers can request information about how tips are distributed, this does not override the Data Protection Act 2018. Regulation 27J(10) confirms that personal data, including individual earnings or identifiable allocation details, must be protected.

Action: Be clear with your team about how tips are allocated, but avoid sharing personal data. Transparency must not come at the cost of privacy.

What hospitality businesses should be doing now

To stay compliant and maintain team morale, we recommend the following:

• audit your current tronc or tip distribution model for compliance and fairness;
• document your policies and ensure they’re applied consistently;
• use technology to provide visibility without compromising privacy.

How WMT Troncmaster Services can help

At WMT Troncmaster Services, we take the complexity out of tronc management so you can focus on running your business. We currently support over 1,000 of the UK’s leading hospitality businesses, holding more than 50 Michelin stars between them.

Here’s how we support you:

• expert-led compliance with the latest legislation and best practices;
• customised tronc design tailored to your business and team structure;
• TroncBox software that gives your team visibility into how tips are allocated without breaching data protection laws;
• monies paid via your payroll so tips appear on the same payslips as wages, helping staff prove overall earnings to lenders;
• dedicated support from a team of over 45 professionals who work with you day to day.

If you’re unsure whether your current approach is compliant or if you’re looking for a more efficient, transparent and motivating way to manage tronc, we’d love to help.