Since 1 October 2024, the Employment (Allocation of Tips) Act has made one thing unambiguous: 100% of tips belong to your staff, however they're paid. And here's the bit that catches card-heavy businesses out - you cannot deduct the card processing fee from a card tip. If your POS prompts for tips (and it should), here's what the law requires and how to set it up properly.
What the law actually says
The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024 across England, Scotland and Wales. It covers tips, gratuities and service charges - cash and card alike - wherever the employer controls them.
- 100% to workers: every penny of tips must be passed on, with no deductions. Card fees, admin costs, breakage charges - none of it can come out of the tip.
- Fair allocation: tips must be shared fairly and transparently, following the statutory Code of Practice. 'The manager keeps the card tips' is now a legal problem, not just a morale one.
- Paid promptly: tips must reach workers by the end of the month following the month they were received.
- Written policy + records: if your business takes tips more than occasionally, you need a written tips policy staff can see, and three years of records of how tips were allocated. Workers have the right to request those records.
- Agency staff count too: agency workers get the same treatment as employees.
The card-fee trap
Before the Act, some businesses knocked the ~1.7% processing fee off card tips - a £10 tip arrived as £9.83. That's now explicitly not allowed: the worker must receive the full £10, and the business absorbs the card fee as a cost of trading.
It's a small number per tip and a real number per year, so account for it: a venue processing £2,000 of card tips a month eats roughly £34/month in fees on tips alone at a flat 1.69% rate. If that stings, the answer is negotiating your overall card rate - not clipping tips, which now carries employment-tribunal risk.
Setting up tipping on your POS properly
Card tips only work if the till asks. The mainstream systems - Square, SumUp, Zettle, Dojo and the restaurant platforms - all support tip prompts on the payment screen, and pay-at-table devices lift tips measurably because the prompt appears at the natural moment.
Configuration that works in practice: percentage options (10%/12.5%/15%) rather than fixed amounts for table service, a custom-amount option, and 'no tip' visible without shame-scrolling. Make sure tips are recorded separately from sales in your reports - you need that split for the allocation records the law requires, and your accountant needs it because tips aren't your revenue.
Distributing fairly: the tronc question
For pubs, restaurants and salons with teams, a tronc - an arrangement where an independent 'troncmaster' allocates tips by agreed rules - remains the cleanest way to comply. Run properly, a tronc also keeps tips free of employer and employee National Insurance (income tax still applies via PAYE), which means more of the tip lands in pockets.
Smaller teams don't need the formality, but they do need the written policy: who shares (kitchen included?), in what proportions, and when it's paid. Write it down, share it, keep the records. If you're choosing a till for a tips-heavy business, our pub POS guide and salon POS guide cover the systems that handle tip reporting well.
FAQs
Can I deduct card processing fees from card tips?
No. Since 1 October 2024 tips must be passed to workers in full - the business absorbs the card fee. Deducting it risks an employment tribunal claim, and tribunals can order compensation.
Does the tipping law cover service charges?
Yes - discretionary and mandatory service charges controlled by the employer are treated like tips: 100% to workers, allocated fairly. If you add a 12.5% service charge, it belongs to the team.
Do card tips get taxed?
Tips are taxable income for the worker. Paid through payroll they go through PAYE; through a properly run independent tronc, income tax applies but National Insurance generally doesn't - which is why bigger venues use one. Take payroll advice on your specific setup.
Do I need a written tips policy?
If your business receives tips more than occasionally, yes - a written policy available to all staff, plus records of how every tip was allocated, kept for three years. A one-page policy covers most small venues.
