Employment Rights Act 2025: New Consultation Requirements for Tipping Policies

What is the current position on tips and gratuities?

The Employment (Allocation of Tips) Act 2023 introduced obligations to ensure that workers receive "tips, gratuities and service charges" in full, and that they are allocated in a fair and transparent way. Where qualifying tips, gratuities and service charges are paid at (or are attributable to) an employer's place of business on "more than an occasional and exceptional basis", the employer must have a written policy on how it deals with tips. There is currently a statutory Code of Practice.

What are the changes that are contained in the Employment Rights Act 2025?

The changes in the ERA are expected to come into force in October. New obligations state that before producing the first version of a written tips policy, an employer will be required to consult on a written tips policy with recognised trade union representatives or workers representatives of workers likely to be affected by the policy. The employer will be able to consult with workers directly if there are no trade union or worker representatives. Employers will also be required to review the tips policy at least once every three years and at the same time consult with trade union or workers’ representative, or the workers directly if there are no such representatives. Once in force, the three yearly review will apply from the first day on which the first version of the policy is made available, and this will include where the first day was before the new provision came into force. Employers will be required to make an anonymised summary of the views expressed in the consultation available to all workers of the employer at the place of business where the tips policy applies.

What was the outcome of the consultation?

The highlights from the Government’s response to the consultation are below:

• A central theme throughout the consultation response, was that the flexibility for employers needs to be preserved.

• When considering customer experience, the Government have indicated that whilst not a legal requirement for businesses to publicly display their tipping policy, for customers a greater transparency about how tips are distributed could help “align customer expectations with business practices”. The Government response encourages employers to provide some of this information publicly, in the interests of promoting transparency.

• The Government recognises the administrative and financial burden on employers when passing on tips to employees. In developing further guidance, the government will remain “mindful” of the need to avoid imposing additional burdens.

• The government have noted that through the response to the consultation, there are significant variations of approaches taken by employers “both in the factors considered when distributing tips between their workers and in their practical approach to consulting, including the need for new processes or systems and the time taken to design the consultation process.” The government therefore highlight the need for flexibility for different industries and different employers, and to “proceed with care” when implementing new burdens when developing a new framework through the updated Code of Practice and additional non-statutory guidance.

• When considering what the consultation may look like, the Government state that there is a need for “strong guidance about what constitutes meaningful consultation, including expectations around communication, documentation and worker involvement before the requirements come into effect.”

Draft Revised Code of Practice

Points to note are as follows:

• The tipping policy must be reviewed at least every three years.

• Employers must consult with workers, ideally achieving broad agreement in the workplace that the system of allocation and distributing of tips is fair, reasonable and clear.

• Consultation should be “genuine, considered and conducted in good faith, with sufficient time allowed for those participating, rather than a paper exercise”. However, the process remains “advisory” rather than binding, and employers are not required to follow every suggestion made by workers, “as long as they can demonstrate they have followed the requirements of fairness and transparency”.

• The consultation should take place with recognised trade union representatives or other worker representatives where they exist, but if absent directly with the workers likely to be affected by the policy. “Where trade unions are recognised in respect of only part of the workforce being consulted, or different groups of workers are covered by different forms of representation, but not all relevant workers are so represented, employers may also engage directly with the workers affected”.

• Consultation can be through a variety of methods, but the draft revised Code of Practice highlights that the consultation should seek views across the relevant groups of workers and should not solely rely on the views of the largest group, or of those who are most vocal or most likely to participate. Employers may engage in consultation through a variety of methods, including meetings with representatives, group discussions and the use of surveys as part of gaining worker feedback.

• The draft revised Code of Practice then references that a simple majority should not be treated as the default or preferred mechanism for consultation. “Consultation should also take reasonable steps to obtain and consider the views of majority groups, and of workers who may be less likely to participate confidently or directly in the process, including where barriers to participation may arise by reason of language, cultural background, disability, literacy, confidence or the nature of their role.” There will be further information about the process of consultation, including worked examples, in the non-statutory guidance. The draft revised Code states that if a method of distributing tips is considered fair by the workers affected by it, that may help a tribunal to conclude it to be considered fair and reasonable, provided it does not encompass direct or indirect discrimination.

• Employers should keep a written record of the consultation, the process followed, the views expressed and the outcome.

• The written tips policy will need to include how tips are accepted, how tips are allocated and distributed, what steps the employer takes to ensure tips are handled fairly and transparently, in accordance with the legislation, and what steps the employer takes to consult with workers, in accordance with the 2025 Act.