How are UK Hospitality Businesses Coping with the Tipping Law?

Back in 2016, a government report concluded that 100% of tips in restaurants, hotels and bars should go to workers and not their employers. This signalled the start of a drawn-out process that should have put the matter to rest when, just under a year ago, the UK Tipping Law came into force.

Fast forward to today, however, and the topic remains a source of controversy. In August, for example, news broke that a former employee of The Ivy chain was taking the company to a tribunal, claiming that he had received a “totally unfair” £97 share of a £31,600 tips pot. For its part, The Ivy has gone on record saying it “absolutely refute[s]” the waiter’s allegations and will challenge them at the tribunal.

While the Tribunal is not due to convene until April 2026, the situation serves as a timely reminder that the law set out a statutory Code of Practice on fair and transparent distribution of tips. To recap, as of October 1st last year, employers were required to fairly distribute all tips, gratuities and service charges to workers without any deductions. Tips must be paid to staff no later than the end of the month following the one in which the customer paid them, with employers also required to have a formal written policy explaining how they allocate tips.

As is currently being played out with The Ivy and its former employee, workers can bring a claim to an Employment Tribunal if they believe an employer is not complying with the law. Employers face the potential of a £5,000 fine for non-compliance for every employee who has been affected.

A smooth process?

For the thousands of UK employers to whom the Tipping Law now applies, compliance has brought a series of practical challenges. Smaller businesses, in particular, may still be feeling the strain of keeping systems, records and policies compliant, while larger chains face the challenge of ensuring consistency across multiple sites. For many employers, the law has therefore become not just a compliance issue but also a test of how to balance legal obligations with the realities of day-to-day operations.

For instance, because tips must be passed on to staff without deductions, they can no longer be used to offset business costs such as administration, National Insurance or card processing fees. The requirement to pay tips no later than the end of the following month has also meant existing payroll systems have often needed updating to handle these payments reliably.

Collectively, these measures have added to the administrative workload for businesses nationwide, particularly for those operating across multiple sites or with high staff turnover, where reconciling payments and maintaining transparency can become a significant burden. Businesses that previously relied on discretionary approaches to pooling or distributing tips should, by now, be properly aligned with a more formal framework, ideally backed by efficiency processes and technologies.

Then there are the issues associated with getting tips from customers to employee bank accounts. In practice, this means capturing tips alongside customer payments, separating them accurately from the bill and reconciling the amounts before passing them on to staff. In this context, inefficient or fragmented payment systems add to the administrative workload, increase the risk of errors and make it harder for businesses to meet their obligations under the law.