Hospitality businesses are being urged to review their tipping policies as further reforms under the Employment Rights Act (2025) come into force this October, marking what has been described as the most significant overhaul of employment law in a generation.
Legal experts at Holmes Mackillop Solicitors have highlighted the need for operators to prepare for new requirements that will place greater emphasis on consultation and transparency in how tips are managed.
From October 2026, employers will be legally required to consult with staff or their representatives before implementing any tipping policy. In addition, businesses must review and update these policies at least every three years, reinforcing a more structured and accountable approach to gratuity management.
The changes build on the Employment (Allocation of Tips) Act, which came into force in 2024 and introduced stricter rules across the hospitality sector. Under current legislation, employers must pass on all tips to workers without deductions, except for tax and National Insurance contributions. They are also required to ensure tips are distributed fairly and transparently, maintain detailed records, and provide a clear written policy.
Recent employment tribunal decisions have further underscored the growing importance of tips within overall remuneration. In the case of Palanki vs The Big Table Group (t/a Las Iguanas), the tribunal ruled that an employee’s tips should have been included when calculating holiday pay. This meant that holiday pay should reflect both the employee’s base salary and the average tips they would typically earn.
While the decision does not set a binding precedent, it signals a shift in how tribunals may view tips, particularly where they represent a significant portion of workers’ income. The tribunal also emphasised that employees should not be discouraged from taking annual leave due to financial disadvantage, such as losing out on tips.
Sophie Brown, trainee solicitor at Holmes Mackillop, said the evolving legal landscape means employers must stay vigilant.
“Many aspects of employment law, including tipping, are constantly evolving; not least with the introduction of the new Employment Rights Act,” she said.
“Particularly in industries such as hospitality and leisure, where tips may form a substantial part of employees’ overall benefits, employers should be mindful of their obligations regarding tipping. Employers should conduct reviews of their policies to ensure they abide by current regulations and are prepared for the new rules to emerge soon.
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“We can advise employers how they can ensure they are up to date with the current regulations on tipping, as well as other significant employment law changes coming into force through the Employment Rights Act.”
With enforcement tightening and scrutiny increasing, operators across the hospitality sector are being encouraged to act now to ensure compliance and avoid potential disputes as the new rules take effect.
