UK Restaurant Owners: Tips Act 2023 and Service Charge Compliance

The Tips Act: What Changed and When

The Employment (Allocation of Tips) Act 2023, which came into force on 1 October 2024, requires UK employers in hospitality and other tipped industries to pass 100% of tips, gratuities, and service charges to workers. Employers can no longer retain any portion of tips to cover card processing fees, administration costs, or any other purpose.

Additionally, employers must have a written tips policy and must distribute tips in a "fair and transparent" manner. The law applies to all tips received — whether in cash, by card, or through digital tipping platforms.

What the Law Requires

1. 100% allocation to workers: Every penny of tips and service charges must go to the workers who earned them. No employer deductions.
2. Written tips policy: Employers must have a written policy explaining how tips are distributed and make it available to all workers on request.
3. Fair distribution: The allocation method must be "fair." HMRC has published a statutory Code of Practice defining fairness — it includes factors like hours worked, role type, and contribution to the tipped service.
4. Tip records: Employers must keep records of all tips received and how they were allocated for three years. Workers have a right to request these records.
5. No deductions for card fees: Unlike the US, UK employers cannot deduct credit card processing fees from tips before distributing them.

Service Charges vs Voluntary Tips

Both mandatory service charges (added automatically to bills) and voluntary tips left by customers are covered by the Act. The employer cannot treat a mandatory 12.5% service charge as company revenue — it must be distributed to workers according to the fair allocation method.

This is a significant change for many UK restaurant groups that had treated service charges as a revenue item used to subsidise wages, back-of-house staff costs, or overheads.

Configuring Your POS for Compliance

Your POS must clearly separate service charges and tips from food and drink revenue in your financial records. End-of-day reports should show:

• Total food and drink revenue (your revenue)
• Total service charges collected (to be allocated to workers)
• Total cash tips reported (to be allocated)
• Total card tips received (to be allocated)

OneScale's payment module tracks tips and service charges separately from revenue, producing the allocation records the Act requires to be maintained for three years.

Worker Rights Under the Act

Workers have the right to request a statement of tips allocated to them in any month — the employer must provide this within four weeks. Workers can raise complaints about non-compliance with Employment Tribunals. Tribunals can award compensation of up to £5,000 per complaint for underpayment, plus order the employer to revise their allocation method.

Conclusion

The Tips Act 2023 is now in force. UK restaurant and hospitality operators who have not yet reviewed their tip allocation policies, updated their POS reporting, and prepared worker-accessible records are at legal risk. The changes required are operational, not complex — but they need to happen before a worker complaint, not after.