Restaurant Tips and Gratuities in Australia: What the New Fair Work Rules Mean for Your Business

For decades, tipping in Australian restaurants and cafes was a grey area — a cultural habit without clear legal rules. If a customer left a tip, what happened to it was largely up to the employer. Some passed it straight to staff. Others pooled it. Some quietly pocketed it. None of that was technically illegal.

That changed on 1 January 2024.

The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 introduced specific obligations around tips, gratuities, and service charges for Australian hospitality businesses. For the first time, employers are legally required to handle customer tips in a compliant way — and failure to do so puts you at risk of Fair Work scrutiny, employee complaints, and reputational damage.

This guide explains what the new tips and gratuities rules mean for your restaurant, cafe, or bar — and what you need to do to stay on the right side of the law.

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What Changed Under the Closing Loopholes Act?

The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 received Royal Assent on 14 December 2023 and introduced Part 2-7A into the Fair Work Act 2009. This new part deals specifically with employee tips, gratuities, and service charges.

The core change: employers who receive tips on behalf of employees must pass those tips to the relevant employees. The law prohibits employers from unreasonably withholding tips.

This sounds simple, but it has practical implications for how your hospitality business receives, pools, and distributes customer gratuities — and what records you keep.

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Who Does This Apply To?

The tips provisions apply to national system employers — which covers most private sector businesses in all states and territories except Western Australia (which has its own industrial relations system for non-incorporated entities). If your hospitality business is a company (Pty Ltd), the Fair Work Act almost certainly applies to you.

The rules apply regardless of the size of your business. There is no small business exemption for the tips provisions — unlike some other Fair Work protections, this one applies from day one.

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What Counts as a "Tip" Under the Law?

The legislation covers:

• Tips and gratuities — voluntary payments made by customers over and above the price of goods or services, intended as a reward for the service provided by employees
• Service charges — amounts added to the bill by the business (for example, a 10% service charge), where the customer intends this to go to the employee

The key concept is employee intent — the law focuses on payments where the customer intends the money to benefit the employees who served them, not to go to the business owner's general revenue.

This means:

• A cash tip left on the table = covered
• A tip added via EFTPOS at the point of sale = covered
• A mandatory 10% service charge shown on the menu (if understood by customers as going to staff) = likely covered
• A weekend surcharge that covers your higher penalty rate costs = generally not covered (that's your business managing award obligations, not a tip)

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The Core Obligations for Employers

1. Pass Tips to the Employees They Were Intended For

If a customer tips a specific employee — or if it's clear from context which staff members the tip is for (for example, a tip left with a waiter at the end of a meal) — that money must go to those employees.

You cannot redirect tips intended for specific employees to:

• General business revenue
• Shared pools that include management or owners
• Other purposes without reasonable justification

2. Do Not Unreasonably Withhold Tips

The legislation prohibits unreasonable withholding. This is a conduct standard — there may be legitimate reasons why you pool tips differently (for example, pooling between front-of-house staff who all contributed to the customer experience), but you cannot simply retain tips because it is convenient for your cash flow.

3. Maintain a Tips Policy

Employers who receive tips must have a written tips policy that outlines how tips received by the business will be distributed to employees. This policy must be provided to employees.

If you do not currently have a tips policy, you need one. It should cover:

• How tips are collected (cash, EFTPOS, etc.)
• Whether tips are pooled or allocated individually
• If pooled, how the pool is distributed among staff
• What, if any, deductions are made before distribution (for example, EFTPOS processing fees — see below)
• How frequently tips are distributed (e.g., weekly, at the end of each shift)

4. Record-Keeping

While the specific record-keeping requirements under the tips provisions are worth confirming with an employment lawyer or the Fair Work Ombudsman for your specific circumstances, best practice is to maintain records of:

• Tips received (amount, date, method)
• How tips were distributed to employees
• A copy of your current tips policy

These records protect you if an employee later raises a dispute about whether they received their tips.

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Can You Deduct Fees From Tips Before Distributing?

This is a common question. If a customer tips $20 via EFTPOS and your bank charges a $0.30 merchant fee on that transaction, can you deduct that fee before passing on the tip?

The general principle is that reasonable deductions may be permitted — for example, actual transaction costs directly related to processing the tip. However, you cannot use transaction fees as a way to significantly reduce or withhold tips. The deduction must be genuinely tied to the cost of processing, not a way to retain revenue that was intended for staff.

If you operate a tipping system where tips are collected digitally, review your merchant agreement and understand what processing costs apply specifically to tipped transactions. Your tips policy should explain any such deductions transparently.

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Can Owners and Managers Be Included in Tip Pools?

This is a grey area. The general intent of the legislation is that tips go to employees who performed the service — not to owners, directors, or managers who have broader authority and compensation arrangements.

If you are a working owner who regularly performs front-of-house duties alongside your staff, you may or may not be entitled to share in a tip pool depending on your employment status and role. An employment lawyer can advise on your specific situation.

As a general rule, tip pools that include only genuinely service-facing employees — waitstaff, bartenders, kitchen staff — are lower risk than pools that flow up to management or ownership.

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What About Tronc Systems?

Some larger hospitality businesses use a "tronc" system — a separate arrangement for collecting and distributing tips, often run by a "troncmaster" (typically a senior employee). Tips processed through a tronc may have different tax treatment.

For small hospitality businesses (1–50 employees), tronc systems are relatively rare. If your business receives a significant volume of tips and you want to explore a tronc arrangement for tax efficiency, seek advice from a tax accountant with hospitality experience.

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How Tips Are Taxed

Tips received by employees are generally assessable income for the employee — they need to declare tips received as part of their income. As the employer, if tips flow through your EFTPOS system or payroll, you may have PAYG withholding obligations on those amounts.

For cash tips given directly by customers to employees, the employee receives the money personally and the employer typically has no withholding obligation — but the employee is still required to declare this income.

This is worth discussing with your accountant to make sure your payroll processes correctly handle any tips that flow through business accounts.

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The Practical Steps for Compliance

Here is what a hospitality business needs to do to comply with the tips provisions of the Fair Work Act:

Step 1 — Audit your current practice. How do you currently handle tips? Are cash tips simply left for the relevant staff member? Do you pool EFTPOS tips? Do tips currently go into general revenue? Understand where you are now before you can build a compliant system.

Step 2 — Write your tips policy. Create a written document explaining how your business handles tips. Keep it clear and practical. Employees are entitled to see this policy.

Step 3 — Distribute the policy to all staff. Provide the policy to existing employees and include it in onboarding for new hires. If you update the policy, notify staff.

Step 4 — Set up a distribution mechanism. Decide how frequently you will pay out pooled tips. Many hospitality businesses do this weekly or at the end of each pay period. Build this into your payroll or cash management process.

Step 5 — Keep records. Maintain a simple log of tips received (particularly those that come through your EFTPOS or POS system) and how they were distributed.

Step 6 — Revisit your Sunday and public holiday surcharges. If you charge weekend or public holiday surcharges to cover higher award rates, make sure your menu disclosure is clear that these are business surcharges to cover increased labour costs — and are separate from any tips customers may choose to leave.

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What Happens If You Get This Wrong?

The Fair Work Ombudsman can investigate complaints from employees about tips that were not passed on. If the FWO finds your business has withheld tips unreasonably, you may face:

• Compliance notices requiring repayment of withheld tips to employees
• Fines and civil penalties — under the Fair Work Act, contraventions of employer obligations can attract significant penalties per contravention
• Reputational harm if the matter becomes public or leads to media coverage

Given the relatively low compliance cost of a simple tips policy and distribution process, the risk/reward here is strongly in favour of getting this sorted now rather than waiting for a complaint to force your hand.

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The Bigger Picture: Wage Compliance in Hospitality

The tips provisions are part of a broader pattern of tightening compliance in the hospitality sector. The Closing Loopholes Act also introduced strengthened protections against wage theft, expanded rights for casual employees, and the "right to disconnect" provisions.

Hospitality remains one of the most heavily audited industries by the Fair Work Ombudsman. If the FWO comes knocking about a wage or entitlement complaint, they will often look at the whole picture — and a business with incomplete records, no tips policy, or murky gratuity practices starts that conversation on the back foot.

For a complete view of your hospitality employment obligations, see our hospitality compliance checklist and our guide to Fair Work audits in hospitality.

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Summary: Tips Compliance Checklist

• Written tips policy in place and distributed to all staff
• Tips collected via EFTPOS/POS are tracked and distributed to employees promptly
• No tips are being retained by the business or directed to management/owners without justification
• Any deductions from tips (e.g., processing fees) are documented and reasonable
• Records of tip receipts and distributions are maintained
• Payroll or accountant has confirmed tax treatment of tips through business accounts
• Sunday and public holiday surcharges are clearly disclosed on menus as business surcharges (not tips)

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Stop Juggling Compliance on Your Own

Tips and gratuities are just one of dozens of obligations that apply to a hospitality business. Between Fair Work award requirements, food safety, liquor licensing, WHS, superannuation, and now tips legislation — compliance in hospitality is a full-time job in itself.

Reguladar gives Australian hospitality businesses a single dashboard showing exactly which obligations apply to their business, when deadlines fall due, and what they need to do next — across employment law, tax, WHS, privacy, and more.

Start your free compliance check at Reguladar and find out exactly where your hospitality business stands.

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Note to CMO: Please fact-check the specific record-keeping requirements under Part 2-7A of the Fair Work Act — the written tips policy obligation and any prescribed record-keeping format. The core prohibition on withholding tips (from 1 January 2024) is well-established, but the specifics of the policy disclosure obligation and penalties per contravention should be verified against current FWO guidance before publication.