FAQ

Any business that takes tips or discretionary service charges that need to be distributed to a group of employees. This usually means most businesses within the hospitality sector including bars, cafés, hotels, pubs and restaurants. This includes single and multi-site businesses alike. Ttronc can sometimes also apply to some non-hospitality businesses like MOT centres!

Businesses that take a compulsory service charge cannot put this into a tronc fund – only discretionary service charges can be applied along with gratuities. This means that customer invoices, and even menus, if possible, must state that the service charge is discretionary, and the business must have a mechanism for removing the service charge from the Bill if the customer wishes.

A tronc scheme is a cost efficient way of processing tips as it does not attract National insurance for either the employer or the employee. This saves costs for the business and ensures a higher percentage of the tip amount goes into the employees’ pay packets.

By implementing a Tronc scheme, employees are more likely to feel motivated and valued as their hard work and customer service efforts are recognized and rewarded. They are more likely to remain with the organization, reducing turnover rates.

An ethically run tronc scheme will ensure transparency and fairness in relation to distribution amongst the team, because a Troncmaster should be independent of the business and therefore not subject to making bias decisions.

The Tronc scheme works by establishing a process for collecting and distributing tips and service charges among employees.

Tips are collected from customers through various means such as cash, credit card payments, or service charges added to bills. These tips are designated as part of the Tronc fund.

The Troncmaster establishes specific allocation criteria to determine how the shared tips will be distributed among eligible employees. These criteria can include factors like hours worked, job roles, or seniority etc.

The allocation process should be fair and transparent to ensure equal opportunities for employees to receive their share of the shared tips.

If the business has a tronc scheme, then that will usually be the only way for employees to receive their share of the tips or service charge available. If an employee opts out of the tronc scheme, that would usually mean they are forfeiting their allocation. Opting out usually only happens if an employee receives benefits and is worried receiving tronc will affect their payment due to the variable nature of the amount from pay period to pay period.

The scheme is administered by a Troncmaster and possibly a Tronc committee.

The Troncmaster must be someone who is independent of the business owners or senior/hiring team). This is an area where many companies get it wrong. They appoint a senior employee, someone from HR or a Manager who may have been responsible for distributing tips in the past. If, however, the Troncmaster has any responsibilities regarding the leadership or employment of staff, it could make the tronc scheme non-compliant, because those actions are seen as an extension of the employer.

A tronc committee is often opted for with larger organisations that have many venues within one site, such as a large hotel, and should include representatives from across various areas of the business, ensuring a fair and impartial distribution process.

The Tronc committee or Troncmaster establishes criteria for the distribution of tips. This can include factors such as hours worked, job roles, or seniority.

Based on the established criteria, the Troncmaster determines the allocation of tips to eligible employees.

The allocated tips are added to employees’ regular payroll, or in some circumstances processes through a separate tronc payroll. The employer or troncmaster is responsible for deducting income tax before paying tronc to employees.

Tronc allocated by an independent Troncmaster can be processed via the Employer’s PAYE scheme, however a separate scheme would be necessary if the tronc funds are paid from a separate bank account.

Using an independent Troncmaster will help ensure that the scheme is compliant and benefits from the NIC savings.

There is a legislative requirement to adhere to in regard to tax, National Insurance and National Minimum Wage which can be found under the HMRC E24 booklet.

There are HMRC record keeping requirements to adhere to with regards Real Time Information reporting.

Employment (Allocation of Tips) Bill 2023 will be enforced from July 2024.

The beauty of a Tronc scheme is that it can be configured in a way to reflect your business. Careful consideration should be given to how the tips are distributed throughout all teams involved in delivering a service to your customers. A tronc scheme is an opportunity to demonstrate fairness and transparency in the way tips are allocated.

Some of the factors that can be built into your tronc rules include:

• Hours worked

• Contracted hours

• Job roles and responsibilities

• Seniority

• Length of service

• Departments

• Teamwork and collaboration

The Tronc scheme can be structured based on fixed amounts, percentages, or a combination of both, allowing for percentage allocations between different departments.

For more complex arrangements, a points system can be used that allocates points dependent on specific criteria.

The specific structure can be determined based on the organisation’s policies, industry norms, and the desired method of tip distribution.

Typically, Tronc distributions occur on a monthly, weekly, fortnightly, or quarterly basis. Generally, companies tend to run a tronc in line with their payroll frequency or if paid weekly, they may decide to just distribute the tronc payments monthly.

In short, no. The tips and service charges are collected, pooled, and distributed among employees according to predetermined criteria. The purpose is to ensure fair and transparent distribution of tips, and it is illegal for a business to allow employees to take cash in lieu of electronically paid tips.

Tips paid via credit or debit card are deemed as money paid directly to the employer and would be subject to tax and NI liabilities, unless there is a compliant tronc scheme, in which case only tax liabilities.

This practice will lead to discrepancies between the EPOS system and the cash amount in the till, which would flag up as an irregularity and possibly tax evasion.

A tronc scheme is the best way of demonstrating fairness to your employees. To maximise this fairness, consider the following;

• Appoint an independent Troncmaster to manage the tips distribution process. There can be no claim to bias if the Troncmasters isn’t an existing employee.

• Establish clear guidelines outlining the criteria of tips distribution and these guidelines should be communicated to all employees.

• Regularly review the tip distribution process to ensure it remains fair and aligned with organizational goals.

• Maintain open communication with employees about the Tronc scheme.

• Address any questions or concerns they may have to foster trust and transparency.

• Keep detailed records of tip collection, pooling, allocation calculations, and individual distributions.

Employers are responsible for deducting income tax from the allocated tips before distributing them to employees. It should not be subject to National Insurance, Pensions, Student Loans or Attachment of Earnings deductions.

It should not be paid under a previously used pay code – this can cause issues with your NI’able Year to Date reporting.

There is no requirement for a separate tronc scheme for different sites or departments, although positions and departments could factor in determining the allocation. If a multi-site company is paid through a single PAYE scheme, with a similar service type across all sites, it is usual that there would be only one tronc system in place. If each site is under a different PAYE scheme and the service model differs, it is likely that one group of companies could have multiple tronc scheme systems in place.

Whilst a multi-site business within one PAYE scheme can have one tronc scheme, it’s important to note that they would have separate “funds”, i.e. the tips earned in one site would form that site’s tronc fund and only employees that have worked in that site, or a central team that have provided support to that site, should receive a share of that site’s tronc fund.

Tronc scheme should be communicated in a written document (called an Employee Tronc Agreement) where this is explained in a simple language easily understood by employees.

There may be concerns about how tips will be distributed and whether all employees will receive their fair share based on their contributions.

Some employers may worry about how employees will react to changes in the tipping system. Concerns might arise regarding potential dissatisfaction, resistance, or misunderstandings among staff when transitioning to a Tronc scheme.

It is essential that the purpose and benefits of using a tronc scheme are communicated to employees. In some cases it may be beneficial to give them an opportunity to contribute to the decision about the distribution rules by being part of, or communicating through, a tronc committee.

• Maintain accurate records of all tips collected, including the source (cash, credit card, service charge, etc), date and amount.

• Keep detailed records of the Tronc fund, which includes the pooling of tips. This should include information on the total amount of tips collected, any deductions or allocations made, and the remaining balance in the Tronc fund.

• Clearly document the criteria used to allocate tips among employees such as job roles, hours worked.

• If a Tronc committee or Troncmaster is responsible for managing the scheme, maintain records of their activities and decisions. This includes minutes of meetings, distribution calculations, and any relevant correspondence.

• Document the integration of tip allocations into the regular payroll process.

• Employers should keep records of tip collection, allocation, and distribution. Employees should have access to information regarding the total amount of tips collected and how they are distributed.

• Maintain accurate records of all tips collected, including the source (cash, credit card, service charge, etc.), date, and amount.

• Keep detailed records of the Tronc fund, which includes the pooling of tips. This should include information on the total amount of tips collected, any deductions or allocations made, and the remaining balance in the Tronc fund.

• Clearly document the criteria used to allocate tips among employees such as job roles, hours worked.

• If a Tronc committee or Troncmaster is responsible for managing the scheme, maintain records of their activities and decisions. This includes minutes of meetings, distribution calculations, and any relevant correspondence.

• Document the integration of tip allocations into the regular payroll process.

• Employers should keep records of tip collection, allocation, and distribution. Employees should have access to information regarding the total amount of tips collected and how they are distributed.

Service charge is only subject to VAT if it is compulsory.

Service charge going into a tronc scheme is discretionary, and therefore not subject to VAT

https://www.uhy-uk.com/insights/how-paying-service-charge-meal-relates-vat

During an audit, an Inspector of Taxes will ask to see all records relating to the Tronc scheme, and likely compare it to your payroll records, and subsequently the Real Time Information records that HMRC hold. They will check that tronc is not making up National Minimum or Living Wage, and check that there is clear evidence that the tronc has not been allocated by the Employer. If they find any evidence of non-compliance, they can penalise the business for backdated National Insurance contributions for up to 6 years, and the business will have to pay both the Employers and the Employees National Insurance.

We recommend that your tronc scheme is reviewed regularly to ensure it is compliant, effective and is well received by staff.

These reviews could include;

• Employee feedback

• Review of any changes to the service model

• Monitoring industry trends

• Consultations with Tronc Committee

• Review of legal and regulatory requirements due to changes in law