The Tipping Law Consultation Closed April 1. Here's What Hospitality Must Do By October.

Phase 1 was: pass tips on to staff. Phase 2 is: prove you did it fairly, in writing, with staff sign-off — and if you got it wrong since Phase 1, there's a 6-month window to claim against you.

The government consultation on Phase 2 of the Employment (Allocation of Tips) Act 2023 closed on April 1, 2026. The measures are now locked in. From October 1, 2026, every UK hospitality employer that collects tips, service charges, or gratuities must have a formal written tipping policy in place — and evidence that staff were genuinely consulted in creating it.

Most independent operators have neither. You have six months. Here's exactly what you need to do.

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Where Tipping Law Stands Right Now

Phase 1 — Already in Force

Phase 1 of the Employment (Allocation of Tips) Act has been in force since October 1, 2024. Under Phase 1:

• All tips, gratuities, and service charges collected by the employer must be passed to workers in full
• Tips must be distributed within one calendar month of the month they were collected
• Employers cannot retain any portion of tips (including card service charges) for "admin fees" or "processing costs"
• Workers can request a written breakdown of how tips were allocated — and employers must respond within 4 weeks

Reality check: A significant proportion of hospitality employers are not fully compliant with Phase 1. The FWA's launch on April 7 brings enforcement of Phase 1 within its remit.

Phase 2 — October 1, 2026

Phase 2 adds the policy and consultation requirements. From October 1:

1. Every employer must have a formal written tipping policy in place before tips are collected
2. The policy must have been developed with genuine staff consultation — not just notification
3. The policy must be reviewed at least every three years, with documented staff input at each review
4. Workers — including former employees — can request to see three years of tip allocation records. Employers have 4 weeks to respond.

The enforcement mechanism: any worker (current or former) can bring an Employment Tribunal claim if the policy doesn't exist, if allocation was improper, or if records were not provided on request. There is no financial cap on awards in tip allocation cases.

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Why the FWA Changes Everything

Prior to the Fair Work Agency's launch, a worker seeking to enforce tipping rights had to initiate an Employment Tribunal claim themselves — a significant barrier that depressed enforcement. Many hospitality workers don't pursue tribunal claims even when they have a valid case.

The FWA changes the dynamic in two ways:

First: FWA inspectors will examine tipping policies as part of routine NMW compliance visits. An inspector arriving to audit your NLW rates will also be entitled to ask whether you have a tipping policy and whether it meets Phase 2 requirements.

Second: The FWA can initiate investigations on the basis of sector intelligence, not just individual complaints. A hospitality sector without widespread written tipping policies is exactly the kind of systemic gap the FWA was created to address.

Matthew Taylor, the FWA's chair, wrote the Good Work Review that identified tip allocation as a specific area of worker exploitation. This is not an enforcement priority that will be deprioritised.

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What a Compliant Tipping Policy Must Include

There is no mandated template, but the legislation requires the policy to address:

1. What Counts as a Tip at Your Business

• Cash tips given directly to staff by customers
• Card tips added to card payments
• Automatic service charges
• Tips collected in a central pool (tronc)
• Any combination of the above

The policy must specify which of these applies at your venue and how each type is handled.

2. How Tips Are Collected and Allocated

• Who collects tips (individual servers, pooled, centralised tronc)?
• What factors determine individual allocations (hours worked, role, shift)?
• How soon are tips distributed (the Phase 1 one-calendar-month rule)?
• Are any deductions made, and if so, on what grounds? (Note: admin fee deductions from worker tips remain illegal)

3. Who Is Included

• Are all staff included, or only front-of-house?
• Are kitchen staff included?
• Are agency workers entitled to share tips?
• What about new starters in their first month?

The Phase 1 rules require tips to be distributed fairly and equitably. The Phase 2 policy must make explicit how you define "fairly."

4. The Consultation Record

This is the element most operators will overlook. The policy must have been developed with genuine consultation — meaning your staff had a real opportunity to input before the policy was finalised, not just after.

In practice, this means:

• A team meeting where the draft policy was shared and discussed
• A written record of who attended and what was discussed
• Any amendments made following staff feedback
• A dated sign-off showing the consultation took place

A 15-minute all-staff meeting with a meeting note is legally sufficient. An email sent to staff with "let me know if you have any questions" is likely insufficient.

5. How Staff Can Raise Concerns

The policy must include a clear process for staff to raise queries or concerns about tip allocation — and a timeframe for response.

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The Records Obligation

This is the part of Phase 2 that will catch most operators out.

From October 1, workers can formally request to see the allocation records for any period in the previous three years. This covers the period from October 1, 2023 (when Phase 1 took effect) through to the date of request.

What you need to keep for three years:

• Weekly or monthly tip allocation totals
• How those totals were split among staff (by role, shift, or individual)
• The dates and amounts of payments to each worker
• Any records of challenges or queries raised about allocations

If you are operating a tronc scheme through a tronc operator or specialist payroll bureau, they should be maintaining these records. Verify this before October — don't assume.

If you are operating manual tip pools, you need to start keeping written records now. A simple spreadsheet is sufficient, provided it shows allocation per worker per period.

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The Timeline You Need to Follow

Six months sounds like a long time. It isn't, once you account for the consultation requirement.

By end of April:

• Draft your written tipping policy (use the framework above)
• Schedule a staff meeting to discuss it

By end of May:

• Hold the staff consultation meeting
• Take notes, get a sign-off list of who attended
• Amend the policy if any valid feedback was received

By end of June:

• Finalise the policy
• Begin keeping written tip allocation records from this point forward

By October 1:

• Policy in place, staff consulted, records up to date
• Policy available to staff on request
• Process for handling records requests established

Ongoing:

• Monthly tip allocation records maintained
• Policy review scheduled for October 2029 at the latest

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Common Mistakes to Avoid

"We already tell staff verbally how tips work." Verbal communication does not satisfy the written policy requirement. The policy must exist as a written document.

"We have a service charge policy — that's the same thing." Not necessarily. If your service charge policy doesn't address all the Phase 2 requirements (consultation, records, allocation method, dispute process), it doesn't comply.

"We'll deal with it in September." The consultation requirement means you cannot create a compliant policy in September. Genuine consultation takes time. Start now.

"We use a tronc operator so we're covered." Your tronc operator handles distribution. You still need a written policy that covers what a tronc is, how your tronc works, and how staff can query allocations.

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The Connection to Phase 1 Underpayment Risk

The 6-month Employment Tribunal window opens October 1, 2026 — meaning workers can bring claims for Phase 1 breaches (since October 2024) until April 2027.

If your Phase 1 compliance has been imperfect — tips delayed beyond one month, deductions taken for processing, allocation methods that weren't clearly communicated — a compliant Phase 2 policy with transparent records is your best defence against retrospective claims.

The FWA will be reviewing Phase 1 compliance as part of Phase 2 inspections. A business that can demonstrate a clear, well-documented tipping policy and allocation records is in a substantially better position than one that cannot.

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TL;DR

• The tipping law consultation closed April 1 — Phase 2 is locked in for October 1, 2026
• You need: a written policy, staff consultation evidence, 3 years of allocation records accessible on request
• The FWA (from April 7) will enforce tipping compliance alongside NMW enforcement
• Workers can bring Tribunal claims with no financial cap
• 6-month tribunal window opens October 1 for Phase 1 breaches going back to October 2024
• Start now: draft policy, schedule meeting, consult staff, get sign-offs. You cannot do this in September.

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Not Sure Where Your Compliance Stands?

ComplianceAlert tracks tipping law developments, FWA enforcement guidance, and employment law changes — and sends you a plain-English summary when something changes before your October deadline.

Take our free 3-minute Compliance Score quiz to see where your business stands right now: compliancealert.co.uk/compliance-score

Or start your free 7-day trial — no credit card required: compliancealert.co.uk/hospitality

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