How to Manage Tips Within Your Business

There is quite a lot of controversy surrounding tips in salon environments; whilst it is common for hairdressers to receive tips, there has been some government speculation about tips being used to ‘top up’ pay of apprentices. With this being deemed illegal since 2009, how can you best manage tips within your business?

With the hairdressing industry recently being investigated over pay by HM Revenue & Customs (HMRC), salons need to be vigilant over their efforts to be compliant with the law. The best way to do this is by signing up to the government’s A Code of Best Practice on Service Charges, Tips, Gratuitues and Cover Charges. The code is voluntary and businesses that sign up commit to complying with current employment law over tipping. This includes four key ‘principles of transparency’,¬†stated below as:

  1. Businesses must clearly display their policy relating to tips for both their clients and staff to see.
  2. Businesses must have a process in place to deal with client requests on how and to whom tips are distributed.
  3. Businesses must ensure that staff can explain the policy to clients, or direct them to someone who can.
  4. All staff must be kept fully informed about how tips are collected and distributed.


If salons decide to sign up to the Code of Best Practice, business owners should ensure that information is available to clients on how tips are collected and distributed. Decide whether a percentage of the tips is deducted by the business for admin costs or whether cash and card tips are distributed differently. Clients should be made aware what happens with their tip when it is passed to the salon – at the end of the day, they want to ensure the tip gets to the right people!

All staff should also be made aware that they understand the distribution process and are aware of any reasons why the business deducts money from tips. A written statement should be available at all times for your staff, should there be any misunderstanding.

It is also important to remember that all tips, whether mandatory or discretionary, are subject to tax. Employees should be reminded that any cash tips received should be declared.

Read: Are You Prepared for the National Living Wage?