Tipping, Tronc and the Tips Act
Written and reviewed by the Hospitality Accountants editorial team. Last reviewed 27 July 2026.
For years the law on tips left room for employers to keep a share of card gratuities or fold them into wages. That changed with the Employment (Allocation of Tips) Act 2023. From 1 October 2024, all qualifying tips, gratuities and service charges must reach workers in full, with no deductions by the business. This guide explains what the Act requires and how tips are taxed once they reach staff.
The rules matter for two reasons: the money now belongs to your team, and how you distribute it decides the National Insurance treatment. A well-run tronc can keep tips outside National Insurance, while an employer-controlled pot cannot. Where you would rather not run the scheme yourself, our hospitality payroll and tronc service operates it.
The Employment (Allocation of Tips) Act 2023
The Act received Royal Assent on 2 May 2023 and its main duties took effect on 1 October 2024. It requires that 100% of tips, gratuities and service charges are passed to workers with no deductions, whether the tip is paid in cash or by card. An employer can no longer take an administration cut or use tips to top up basic pay to the minimum wage.
The full text of the Employment (Allocation of Tips) Act 2023 also gives workers the right to see how tips are allocated. Records must be kept, and staff can request them.
The 1 October 2024 Start Date
Although the Act was passed in 2023, its obligations did not bite until 1 October 2024. From that date the fair-allocation duty and the accompanying record-keeping rules apply to every business that receives tips it influences. There was no phase-in by size, so a single café and a national group carry the same duty.
If you set up your distribution before that date, 1 October 2024 is still the point from which fairness and transparency are enforceable. We treat it as the line for compliant records rather than the date the Act was signed.
Tronc Schemes and National Insurance
A tronc is a separate arrangement for sharing tips, run by a troncmaster rather than the employer. Where an independently run tronc decides who receives what, and the employer does not decide or allocate the amounts, the tips are exempt from National Insurance for both the business and the worker. This is a long-standing feature of how tips are treated, not a loophole.
The exemption falls away the moment the employer directs the split. HMRC sets out the boundary in its E24 guidance on tips and troncs, and the detail of who controls the pot is what the treatment turns on.
PAYE Income Tax on Tips
Income tax is different from National Insurance here. Tips are always subject to PAYE income tax, whether they are shared through a tronc or not. A tronc can remove National Insurance, but it never removes income tax, so every worker pays tax on the tips they receive.
In practice the tronc is operated through its own PAYE scheme, deducting income tax before staff are paid their share. Cash tips a worker keeps directly are still taxable, and the worker is responsible for declaring them if they do not pass through payroll.
The Statutory Code of Practice on Tips
Alongside the Act, a statutory Code of Practice on the fair and transparent distribution of tips took effect on 1 October 2024. It is not optional guidance: an employment tribunal must take it into account, so following it is the practical test of a fair policy. The Code covers how you allocate, how often you pay out, and what you must record.
A fair scheme also links to the wider payroll picture, because tips interact with the minimum wage rules on what may and may not count toward the legal floor. Keeping the two aligned avoids an underpayment claim.