Britain’s New Tipping Act: A Promising Path for the Regulation of Service Work – by Einat Albin

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I. Introduction

On October 1, 2024, the newly adopted Employment (Allocation of Tips) Act 2023 (hereinafter: the Tipping Act), came into force, accompanied by a Code of Practice on the fair and transparent distribution of tips (hereinafter: the Code), issued by the Department for Business & Trade (hereinafter: DBT). According to the DBT, the purpose of the Tipping Act is “to ensure the fair and transparent allocation of all tips, gratuities, and service charges.” Its desired outcome is “to improve fairness for workers by ensuring that the tips consumers leave in recognition of good service and hard work are going to the workers as intended.”

The DBT further explains: “The Act aims to increase fairness in tipping practices and create a level playing field for employers who already allocate all tips to workers by ensuring that all employers follow the same rules.” The DBT also highlighted the economic significance of the Act, estimating that it will return £200 million annually to workers.[1] Minister for Employment Rights, Justin Madders, emphasized the importance of the Act, stating: “When you tip someone for good service, you expect them to keep all their tip. They did the work—they deserve the reward. This is just the first step of many in protecting workers and placing them at the heart of our economy. We will be introducing further measures on tipping to ensure workers get their fair share of tips.”

The Tipping Act and the Code represent the culmination of a long history of legislative efforts and case law addressing tipping practices. Together with the 2009 amendment to the National Minimum Wage Act, they constitute a significant triumph—not only in regulating tips but also in capturing the essence of service work that entails a worker-employer-customer triangle due to the involvement of customers in service work relations.

In this blog, I begin by tracing the history of tip regulation in Britain, starting from the 19th century and culminating in the adoption of the Tipping Act and Code. I then outline the main provisions of the Act and Code, before concluding with an argument for why this regulatory approach is a success and why it should serve as a model for the broader regulation of service work.

II. The History of Tips in British Labour Law  

From as early as the 19th century, the issue of tips has been a concern for British policymakers. During this period, the working relationships of waiters occupied a precarious position, caught between a “contract of service” and a “contract for services.” One key reason for this ambiguity was the pay structure, which relied primarily on tips. Many waiters operated under customary arrangements where they paid fees to establishment owners for the opportunity to work in their venues and were thus regarded as self-employed. Tips became their sole source of income, and waiters frequently moved across countries, following seasonal customer migration. As a result, both the nature of the work—seasonal and part-time—and the payment method were deeply intertwined with the worker-customer relationship.

This dynamic began to shift in the early 20th century when both waiters and employers opted for contracts of employment. For waiters, this provided steady employment status and income, while employers gained greater control over their workforce. From this point onward, the primary concerns in British labour law centered on two issues: the intersection of tips with minimum wages and, in some rare instances, the employment status of tip receivers.

In the 1950s, a pivotal decision by a British court established that employers were obligated to pay tip receivers their minimum wages, as stipulated in the Catering Wages Act 1943 and its accompanying regulations, irrespective of the tips they received. The court ruled that tips were the property of the waiters, not the employer. This principle was solidified in the landmark case Wrottesley v Regent Street Florida Restaurant, which dealt with a group of waiters receiving wages below the statutory minimum. Although the addition of pooled tips raised their total earnings above the minimum wage threshold, the court determined that this arrangement was unlawful. Initially, the metropolitan magistrate ruled that no offence had been committed as long as the total earnings met the minimum wage threshold, regardless of the source. However, the King’s Bench Division reversed this decision, holding that employers could not use tips to meet their minimum wage obligations, as tips were the property of the workers.

This approach began to change in the 1990s, starting with the European Court of Human Rights (ECHR) decision in the Nerva case and continuing with the enactment of the National Minimum Wage (NMW) Act 1998 and its associated regulations. These developments permitted certain forms of tips to be used by employers to meet minimum wage obligations. The key question underpinning these changes was: “Who owns the tips?”

In the Nerva case, the Court of Appeal ruled that tips paid via cheque or credit card, once deposited into the employer’s bank account, became the employer’s property. As such, these tips could be used to meet minimum wage requirements.  Dissatisfied with this outcome, the waiters appealed to the ECHR, claiming that the decision violated their right to peaceful enjoyment of possessions under Article 1 of the First Protocol to the European Convention on Human Rights. The ECHR upheld the majority view of the Court of Appeal, with six of the seven judges concluding that tips paid by cheque or credit card legally became the employer’s property. Consequently, this arrangement was not deemed to contravene the rights outlined in the Convention.

The majority judgments in both the British and European Court of Human Rights (ECHR) decisions assessed tipping through the lens of the bilateral employment relationship and property law. These rulings focused on the employer-employee dynamic and the legal ownership of tips, without considering the redistribution of employer functions to customers, the broader impact of customer actions on workers, or the intentions of customers in their informal agreements with workers and employers.

In contrast, the dissenting judges in both courts acknowledged these factors and reached opposing conclusions. Lord Justice Aldous in the Court of Appeal remarked that tips were “not given to increase the bank account of the employers nor are they accepted upon that basis. The tips are given and accepted to be transferred to the tronc or dealt with along the same lines. The tips are not given to discharge any liability of the employers to pay minimum wage.” Judge Loucaides of the ECHR echoed this perspective, emphasizing the distinct nature of tips as contributions intended directly for workers rather than as substitutes for employer obligations.

These diverging opinions reveal a deeper tension inherent in regulating service work. On the one hand, strengthening the bilateral employment relationship provides workers with greater job security, a robust set of labour rights, and reinforces employer prerogatives. On the other hand, consumer involvement in tipping offers workers significant economic benefits, such as higher incomes. Policymakers who prioritize the latter—such as the minority judges in the Nerva cases—place more weight on the worker-customer relationship, whereas those who prioritize the bilateral employment relationship tend to overlook the interests and intentions of customers.

This tension extends beyond tipping to other aspects of the service market. For instance, the flexibility afforded to platform workers often undermines their recognition as “employees” or “workers” under British labour law, as it provides them with advantages such as autonomy in managing their time. However, these work arrangements are deliberately structured by establishments not only to evade labour laws but also to ensure consumer satisfaction. This model allows a large number of individuals to connect to work via an app and be promptly available to customers—far more efficiently than if the platform directly employed a smaller, less flexible workforce under traditional employment contracts. Inherent in this arrangement is the tension mentioned earlier: a trade-off between the flexibility sought by workers, platforms, and customers, and the erosion of the traditional employment contract. Nevertheless, this tension can be mitigated through thoughtful policy interventions, with Britain’s new tipping policy offering a compelling framework for addressing these challenges.

The majority approach in the Nerva cases was later codified in the 1999 National Minimum Wage Regulations. Regulation 31(1)(e) specified that “money payment paid by the employer to the worker representing amounts paid by customers by way of service charge, tip, gratitude, or cover charge that is not paid through the payroll” are excluded when calculating the worker’s remuneration. This meant that service charges, tips, and similar payments processed through the payroll could count toward minimum wage calculations. By contrast, cash tips were excluded and could not be used to meet minimum wage obligations.

In 2009, Britain adopted a significant policy change regarding tips and minimum wage, which came into effect in October of that year. Under this new policy, employers could no longer use tips to meet their minimum wage obligations. The British government cited two primary reasons for this shift: consumer expectations and the monetary benefits workers would gain. This policy restored the legal position established in the Wrottesley decision, reaffirming that minimum wages must be paid by employers from their own funds, while tips serve as an additional source of income for workers. Subsequent judgments by British courts reinforced this principle, emphasizing the importance of passing tips directly to workers and ruling that failure to do so constitutes an unlawful deduction of wages.

Another critical issue concerning tip receivers was their employment status. While the vast majority of tip receivers are legally viewed as having an employment relationship, exceptions arose in situations where their sole earnings came from tips and their work schedules were highly flexible. One notable case involved the Royal Hong Kong Golf Club, where the court examined the legal status of a golf caddie. The caddie arrived daily at the club, without guaranteed work, and waited alongside other caddies for his turn to serve members. At the end of each working day, he was paid in cash by the club, which later debited the member who had used his services. The court ruled that the caddie was not an employee, citing two main reasons: the club had no obligation to provide him with work, nor was it required to pay him a salary beyond what he earned in tips.

A related decision is the Court of Appeal (CA) ruling in Stringfellows Restaurants Ltd v Nadine Quashie, which addressed whether Ms. Quashie, a lap dancer, was self-employed or an employee of Stringfellows Restaurants, the club where she performed. According to the facts presented, Ms. Quashie worked at the club several times per week, paid a fee for the opportunity to work there, and was classified as an independent contractor in the club’s handbook. Her earnings largely came from tips given by clients, referred to as “heavenly money” by the club. The CA accepted the facts determined by the Employment Tribunal that the employer was under no obligation to pay the dancer “anything at all”, and that “she took the risk that on any particular night she would be out of pocket and received back from the employer only monies received from clients (whether by way of cash or Heavenly Money) after deductions”. It decided eventually that “the dancer took the economic risk” and that therefore a contract of employment did not emerge.

III. The Tipping Act and the Code

Over the past year, there has been another significant change in Britain’s tipping policy with the introduction of the Tipping Act and its accompanying Code, which provides detailed guidance on the Act’s provisions. Employers must have regard to the Code when designing and implementing their tipping policies and practice, and it is to be “taken into account” in determining questions on the Act by the Employment Tribunal. However, Article 27T(2) notes that “a failure on the part of an employer to observe any provision of a code of practice issued under this Part does not of itself render the employer liable to any proceedings.” The Tipping Act amends the Employment Rights Act 1996 (hereinafter: ERA) with its main purpose being “to ensure that tips, gratuities and service charges paid by customers are allocated to workers.”

The DBT elaborated on this objective when introducing the Code, stating that the Act aims “to improve fairness for workers by ensuring that the tips consumers leave in recognition of good service and hard work are going to the workers as intended. The Act aims to increase fairness in tipping practices and create a level playing field for employers who already allocate all tips to workers by ensuring that all employers follow the same rules.”

According to the newly inserted Article 27D of the ERA:

1. An employer must ensure that the total amount of the qualifying tips, gratuities, and service charges paid at, or otherwise attributable to, a place of business of the employer is allocated fairly between workers of the employer at that place of business.
2. Where a worker is allocated an amount of employer-received tips in accordance with subsection (1), that amount is payable to the worker by the employer.
3. In determining what would be a fair allocation of qualifying tips, gratuities, and service charges under this section or section 27E (non-public places of business), regard must be had to the relevant provisions of any Code of Practice issued under this Part.

The Act mandates that employers pass all tips and service charges to workers without deductions, except in limited situations, such as income tax deductions. This applies to all “qualifying tips, gratuities and service charges” and includes employer-received tips and worker-received tips. Worker-received tips are tips that (i) Are subject to employer control, or (ii) Are connected with other worker-received tips under employer control. It further specifies that: (a) A worker-received tip is subject to employer control if the employer or an associated person exercises control or significant influence over its allocation. (b) A worker-received tip (“tip A”) is connected to another worker-received tip under employer control (“tip B”) if: (i) Both tips are paid at, or otherwise attributable to, the same place of business, and (ii) Tip A is paid later in the week or the following week after Tip B.

The Code clarifies that tips can include not only monetary payments made via card, cash, or other electronic means but also non-monetary tips like vouchers, stamps, tokens, or other items with a fixed monetary value. An illustrative example from the Code involves casino chips: a casino worker receiving a chip (with a fixed, exchangeable value) in place of a cash or card tip would still be entitled to its allocation under the Act.  However, tips paid in cash directly to workers and retained by them are excluded from the Act’s provisions, as these are not under the employer’s control. The Act also establishes clear standards for employers regarding the collection, allocation, and distribution of tips by them or one of the workers who will be in charge of managing the tronc.  

The newly added Article 27F of the ERA requires employers to distribute tips no later than the end of the month following the month in which the tip, gratuity, or service charge was paid by the customer.

Importantly, under the ERA all those classified as “workers,” not just ‘employees’ are protected. The Tipping Act’s amendments also extend protections to agency workers who receive tips, and applies to a variety of work contracts, including permanent staff, directly recruited staff, and zero-hours contract workers working at the same location.

Furthermore, the Act ensures that tips are distributed fairly and transparently when the employer exercises control or significant influence over their distribution. The Code reinforces the principle of fairness in allocating and distributing tips among all workers covered by the Tipping Act. The Code outlines several key principles of fairness:

• Employers must use a clear and objective set of factors to determine the allocation and distribution of tips;
• This does not necessarily require employers to allocate the same proportion of tips to all workers. There may be legitimate reasons why employers choose to allocate different workers different proportions of tips. However, employers should ensure they give due consideration to all of the workers involved in providing service to customers, including agency workers;
• Unlawful discrimination must be avoided when selecting and applying these factors. This also includes indirect discrimination that is unintentional. Indirect discrimination may be a risk when fewer tips are allocated to a group of workers that includes a disproportionate number of workers with a particular protected characteristic;
• Employers are required to consult with workers to reach broad agreement on a system for allocating tips that is fair, reasonable, and clear;
• Employers are required to regularly review their tipping policy to reflect staff turnover and other organizational changes;
• Employers must also establish a fair process for resolving worker issues and addressing queries about tips.

The Act itself also ensures fairness, mandating that the factors considered by employers must be documented in a transparent tipping policy,which should be shared with workers; and that employers maintain a record of all tips received at their place of business and how these are allocated and distributed among workers. Workers have the right to request access to these records, and they can escalate disputes to the Employment Tribunal if their rights under the Act are violated.

In sum, the Act and the Code introduce five important features:

1. Coverage of a Range of Personal Work Contracts: Beyond clarifying who qualifies as a “worker,” the Act and Code ensure coverage extends to agency workers, workers on zero-hour contracts, and others performing similar forms of precarious work. The obligations placed upon employers might eventually lead to protection for those providing work who are currently not classified as either “employees” or “workers” in cases like  Royal Hong Kong Golf Club and Quashie where employers exercise substantial control over the allocation of tips. The Act’s acknowledgment of this form of control might even help individuals with such working arrangements challenge their supposed self-employment.
2. Recognition of the Worker-Employer-Customer Triangle: The Act and the Code, alongside the 2009 amendment to the Minimum Wage Act, acknowledge the triangular relationship in service work. They prevent this dynamic from obscuring the distinct roles and responsibilities within it. The Act distinguishes the worker-employer relationship from the worker-customer relationship, requiring employers to continue paying minimum wages regardless of tips. At the same time, it recognizes that the worker-customer relationship: Reflects consumer preferences and intentions, and supplements but does not replace the employer’s obligations.
3. Protection of Workers’ Rights and of Collective Consultations: The Act and Code prioritize the interests of workers by safeguarding a broad range of their labour rights. Key measures include:
   • Addressing customer discrimination, including indirect discrimination, a significant issue in tipping practices, by mandating that tips be distributed equally and transparently among all workers.
   • Emphasizing transparency and the provision of information to workers, while requiring ongoing consultation with workers’ representatives, aligning with the principles of the Information and Consultation Directive so as the importance of the collective dimension of workers’ rights.
   • Ensuring workers earn the highest possible income, as tips can only supplement the employer-paid minimum wage. The Act mandates the full distribution of tips to workers, prohibiting employers from using them for any purpose other than increasing workers’ earnings.
4. Acknowledging Employer Control: The Act recognizes that even within the worker-employer-customer triangle, employers retain significant control over workers’ terms and conditions. Accordingly, it establishes obligations and principles for employers to follow in the collection, allocation, and distribution of all “qualifying tips, gratuities and service charges”.
5. Remedies: Finally, the Act creates clear mechanisms for workers to protect their rights. Workers can access records, consult on tipping policies, and escalate disputes to employment tribunals if their rights under the Act are breached.

IV. A Triumph for Tip Receivers and for Service Work Regulation

The current tipping regulations in Britain adopt the “worker-employer-customer triangle,” a concept fundamental to service economies. The five features outlined above effectively protect the rights of tip receivers in the best possible way. However, beyond this immediate impact, these features can also serve as a model for regulating other challenges faced by service workers. This point is particularly significant given that more than 85% of the British labour market is employed in the service sector, spanning both public and private sectors.

As Western economies shift from manufacturing to services, new characteristics emerge that demand attention in labour regulation—chief among them the inclusion of customers within work relationships. Customers perform various roles in the workplace, including sharing employer functions, such as contributing to wages via tips. Yet, because labour law historically evolved around the manufacturing model, it struggles to address this defining characteristic of service work. The result is a regulatory gap, with key issues often overlooked.

For example, labour law has not adequately grappled with the distribution of roles, costs, and contractual obligations among companies, workers, and customers within the triangle, as seen in platform work. This failure contributes to the misclassification of workers as self-employed. Another overlooked issue is the sexual harassment of workers by customers—a widespread and problematic phenomenon that disrupts existing legal frameworks, often leaving workers insufficiently protected. The newly adopted Worker Protection (Amendment of Equality Act 2010) Act, effective from October 26, 2024, addresses this issue by requiring employers to take proactive steps to protect workers from sexual harassment, including third-party harassment, such as harassment by customers.

In this context, the Tipping Act and the Code are groundbreaking. The five features they introduce capture the key elements necessary for addressing the complexities of the worker-employer-customer triangle. Applying these principles to other forms of service work reveals their broader potential.

Take platform work, for example. Feature 1 – Coverage of a Range of Personal Work Contracts – is critical for platform workers. Some platform workers fall outside the formal definition of “workers” but still deserve legal protections, particularly given their economic dependence on the platform. Furthermore, recognizing an establishment that exercises significant control over a work arrangement, even in cases where others are involved (see discussion on feature 4 below), could lead to the classification of other situations where those performing the work are under the establishment’s control – directly or indirectly. This may ultimately result in these individuals being classified as “employees” or, at the very least, “workers.” This is particularly relevant for platform workers whose employment status is dictated by the platform but lacks formal recognition.

Feature 2 – Recognition of the Worker-Employer-Customer Triangle – is equally important. It requires distinguishing between the worker-employer relationship, the worker-customer relationship, and the employer-customer relationship. This distinction redefines the scope of legal protections, and when applied to platform work it can ensure that platforms exercising control over workers are recognized as employers. It can also lead to a re-think of what counts as ‘mutuality of obligation’ when platforms require a particular form of ‘mutuality’ on a come and go basis, where the customer-worker relationship is a one-time interaction.

An additional advantage of distinguishing relationships within the triangular framework lies in how consumer reviews and ratings are assessed. While consumer reviews and ratings are integral to the worker-customer relationship (and possibly the employer-customer relationship), they should not dictate decisions within the worker-employer relationship. By applying the approach of the Tipping Act, platforms would be required to manage consumer reviews and ratings with transparency, fairness, and equality across all workers. They should also incorporate workers’ feedback into these evaluations, particularly when making employment decisions, such as termination. It is not sufficient for humans to simply be “in the loop”; instead, rigorous thought and consultation are essential before employers make such decisions.

Feature 3 – Protection of Workers’ Rights and Collective Consultation – emphasizes the application of labour rights and protections to service workers, including protections against customer-driven breaches such as discrimination. Importantly, the Code underscores the need for frequent consultation with workers’ representatives, not just one-off engagements, ensuring ongoing dialogue about workplace conditions and policies. These issues are very relevant to platform workers.

Feature 4 – Acknowledging Employer Control – requires a thorough examination of how establishments control service-related issues. In the case of platform work it will help expose how platforms control the shifting of their responsibilities and costs to workers and customers, evading legal obligations, while still having immense control over the work arrangement, the workforce and consumer behavior. This feature demands more rigorous oversight of platforms’ treatment of workers, holding them accountable for their actions, while placing on them more stringent legal obligations to prevent consumer discrimination and further forms of abuse.  

Feature 5 – Remedies – ensures that workers have access to robust mechanisms for addressing rights violations. This includes both internal procedures and the ability to escalate disputes to tribunals and courts when necessary, essential for platform workers.

As this additional example illustrates, the five features of the current tipping regulation in Britain provide a robust framework for addressing the unique challenges of service work—not just in tipping but across a range of labour issues. While many of these principles, as they apply to platform workers, are reflected in the newly adopted Platform Work Directive, they are not implemented with the same comprehensive scope that would result if the features of the Act and Code were systematically applied to platform workers. Service work demands a distinct perspective within the field of labour law, and the Tipping Act and Code offer a clear and coherent approach to addressing these complexities. Their principles are not only critical for protecting tip receivers but also hold broader relevance for effectively regulating service work in an evolving economy.

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[1] Page 13 of the report.

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(Suggested citation: Einat Albin, ‘Britain’s New Tipping Act: A Promising Path for the Regulation of Service Work’ UK Labour Law Blog, 21 November 2024 available at https://uklabourlawblog.com/)