Restaurant Tips and Service Charges Explained
How tips, service charges and tronc schemes differ, what UK law requires since 1 October 2024, how to write a tipping policy and what to do in other countries.
Updated 7 min read
On this page
Key takeaways
- A tip is a voluntary payment from a guest, a service charge is added by the restaurant, and a tronc is a way of sharing tips.
- In the UK, since 1 October 2024, employers must pass tips on without deductions, share them fairly and keep a written policy and records.
- Tell guests clearly what the service charge is and who receives it, and show it on menus and bills.
- Rules differ by country and state, so check yours and ask your accountant about tax.
In short: tips belong to the people who earn them, and the way a restaurant shares them should be fair, written down and open. In the UK, the Employment (Allocation of Tips) Act 2023 and a statutory code have applied since 1 October 2024. Elsewhere the rules differ widely, so use this guide to ask the right questions.
UK law is described as of October 2026. This is general information, not legal or tax advice; check with Acas, your tax authority or an adviser.
Tips and service charges are sensitive. Staff care about them because they are part of their income, and guests care because they want to know where their money goes. A clear policy protects both, and it is also good for retention. See staff retention.
Three terms that people mix up
- Tip or gratuity. A voluntary payment from a guest for good service, in cash or by card. Acas describes it as a payment from a customer as thanks for good service.
- Service charge. An amount the business adds to the bill. It may be optional or compulsory.
- Tronc. A system that pools tips and shares them among staff. It can be set up by the employer or independent, and it is run by a troncmaster.
The words on your menu and bill matter. A "discretionary service charge of 12.5%" that the guest can remove is different from a "compulsory service charge". Use plain language and say who receives the money.
UK law in brief
The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024, with a statutory Code of Practice on the fair and transparent distribution of tips. GOV.UK's tips at work page says:
- Tips must be given to workers without deductions.
- Employers must follow the code on sharing tips fairly and transparently.
- The code calls for a written tipping policy and accurate records.
- Workers pay Income Tax on tips and may pay National Insurance.
- Tips do not count towards the National Minimum Wage.
Acas adds that tips must be paid to workers no later than the end of the month after the month in which they were received, and that employers who use an independent tronc must check it was set up fairly. Non statutory government guidance published in September 2024 is reported to confirm that agency workers count when sharing tips and that tips cannot be pooled across sites or branches. These are summaries; read the current code and Acas guidance before writing your policy.
If you operate outside the UK, state or national rules may be very different. In the United States, for example, federal and state laws set the rules on who may share in a tip pool and how tips interact with minimum wage, and they vary. Check your state labour department.
Write a tipping policy
A good policy fits on one page. Include:
- What counts. Card tips, cash tips, service charge, tips left in other ways.
- Who shares. Which roles take part and why. Front of house, bar, runners, kitchen staff, agency workers.
- How it is shared. A fixed split, hours worked, or points per role.
- When it is paid. For example with the regular payroll, within the legal time.
- What is deducted. Say clearly what is allowed by law and what is not.
- Records. How long you keep them, and who can ask to see them.
- Changes and complaints. How staff raise a question, and who answers it.
Give staff the policy at hiring, post it on the staff board and review it with them once a year.
Card tips and payments
Card tips arrive through your payment system. Make sure your till records tip amounts separately from sales, so they never appear as revenue. Pay them out on the schedule in your policy. If your payment provider charges a fee on the whole transaction, including the tip, ask your accountant and read the current UK code before you decide how to treat it.
DineHarbor's POS and its team and shifts tools record who worked each shift and keep individual staff identities, which helps you share by hours or role from clear records. The restaurant, not the software, decides the scheme.
Service charges on the bill
If you add a service charge:
- Show it on the menu and online ordering page before the guest orders.
- Say whether it is optional and how to remove it.
- State what it covers and who receives it.
- Do not present it in a way that looks like a tip set by the guest.
- Check how it is taxed. In some places a compulsory service charge is part of the sale and attracts VAT or sales tax; a voluntary tip does not. DineHarbor branch tax settings include whether service charges are taxable, so configure it with your accountant's advice.
Local consumer law decides how fees must be shown. If unsure, ask your trading standards office or equivalent.
Run a fair scheme
- Do not pool away from the people who earned the tips without a clear reason and agreement.
- Be careful with managers. Many codes expect managers who set the rules not to take from the pool unless it is clearly allowed.
- Include everyone who contributes to service if that is your stated aim, including the kitchen.
- Keep the same rules at every shift.
- Never promise tips when hiring. Say what the policy is and that tips vary.
Tax and payroll
Tips are generally taxable income for the person receiving them, but the way tax and social contributions are collected differs. In the UK, the person running payroll deducts what is due on tips paid through payroll, and different routes exist for tronc payments. Get specific advice from your accountant and the tax authority. Do not guess.
What to do when there is a complaint
Take every complaint seriously. Listen, check the records, explain the scheme, and correct any error promptly. In the UK, the code points to Acas for dispute resolution, with an employment tribunal as a last step. A calm, documented response is almost always faster and cheaper.
A short checklist
- Policy written, shared and signed off.
- Tips and service charge recorded separately in the till.
- Payout schedule fixed and followed.
- Records kept.
- Menu and bill wording checked.
- Accountant consulted about tax.
- Annual review in the diary.
Common staff questions, and honest answers
Staff usually ask the same things: how much will I make, who else shares, why do I get less than last month, and what happens to cash tips. Prepare short answers, ideally in writing. Tips vary with trade, so never promise a figure. Explain the sharing method and show how the pool for a period was calculated if someone asks. If a rule changes, tell the team before it starts.
Delivery and takeaway tips
Online and delivery orders add their own questions. If a guest leaves a tip for a driver on an online order, say clearly where it goes: the driver who made the delivery, or a shared pool. If you use your own drivers, the same policy principles apply: written, fair, paid on time and recorded. If a marketplace app handles the tip, read its terms, because the platform's rules on who receives it may differ from yours. See run your own delivery for how drivers fit into your operation.
Keep the conversation going
A policy on paper is only the start. Mention tips and the sharing method in induction, repeat it at team meetings, and ask for questions each quarter. When staff understand the scheme and trust it, it stops being a source of rumour and becomes one of the reasons they stay.
Want your shifts, staff identities and till in one system? Start the 30 day free trial with no card needed.
Questions and answers
What is the difference between a tip and a service charge?
A tip is a voluntary payment from the guest. A service charge is an amount the restaurant adds to the bill, which may be voluntary or compulsory. Their legal and tax treatment can differ, so state which one you use.
What is a tronc?
A tronc is a system for pooling and sharing tips or service charges among staff. It can be run by the employer or by an independent troncmaster. In the UK, an independent tronc must also follow the tips law and code.
Can a restaurant deduct card fees from tips?
Under the UK law in force from 1 October 2024, tips must pass to workers without deductions, apart from usual tax and National Insurance. The statutory code and government guidance say more about costs. Read the current code or ask Acas.
Do tips count towards the minimum wage?
Not in the UK. GOV.UK says tips do not count towards the National Minimum Wage.
Do customers have to be told about the service charge?
They should be told before ordering, clearly and in a way that cannot be mistaken for a tip. Check consumer protection rules where you trade.
See it in DineHarbor
About the author
Editorial team
The DineHarbor team writes this blog for restaurant owners and managers. Every article is checked against the product before it is published, so what we describe is what the software does.
All articles by DineHarbor team