Tips and service charges after the Tipping Act

Tipping used to be a matter of house custom. The Employment (Allocation of Tips) Act 2023 changed that, and since it came into force employers have had legal obligations around tips rather than traditions.

It gets far less attention in hair, beauty and vehicle trades than it does in hospitality, which is odd, because a busy salon can be handling a substantial amount of card tips every month.

This is a plain summary and not legal advice.

The core of it

Qualifying tips, gratuities and service charges must be passed on to workers in full. The employer cannot make deductions, and that includes deducting the card processing fee or an administrative charge.

Allocation between workers has to be fair. Fair does not mean identical, and a reasonable, explained method that recognises different roles and contributions is allowed. What is not allowed is an arbitrary split nobody can justify.

Tips must be paid by the end of the month following the month they were received.

The written policy

Where tips are received on more than an occasional and exceptional basis, you need a written tipping policy, available to workers, setting out how tips are dealt with and how they are allocated.

That policy is a short document. What counts as a tip, how card tips are handled, how they are shared, when they are paid and who decides. Writing it forces you to make decisions you have probably been making informally and inconsistently.

Records

You have to keep records of tips received and how they were allocated, and workers have a right to request that information. The records requirement runs for three years.

In practice this means card tips need to be recorded per transaction and per worker rather than totalled up at the end of the week from memory. If your payment setup cannot separate a tip from the service amount, that is the first thing to fix, because everything else depends on it.

What is in and what is out

Cash tips handed directly to a worker, which the employer has no control over, are generally outside the scope. The worker keeps them and is responsible for their own tax position.

Anything paid by card, anything the employer receives and distributes, and any mandatory or discretionary service charge is squarely inside.

Agency workers are covered too, which catches out businesses that use freelance help at busy periods.

The practical setup for a salon or garage

• Enable tipping at the payment stage rather than as a conversation. People tip more readily when it is a button and less readily when it is an awkward moment.
• Record the tip against the booking and the worker who did the work, automatically.
• Decide and write down how tips are shared with people who supported the work but did not perform it, such as juniors, reception and valeters.
• Pay them through payroll where they run through the business, and speak to your accountant about the tax and National Insurance treatment, because it differs depending on how tips are distributed.
• Give staff a way to see their own tip total without having to ask.

Why it is worth doing properly

Beyond the legal duty, tips are one of the more emotive subjects in a small team. An unexplained split creates suspicion that lasts far longer than the money involved.

A written policy, an automatic record and a visible total removes the entire argument, which is worth the afternoon regardless of what the legislation requires.