Tronc Scheme: Employment (Allocation of Tips) Act 2023

Businesses operating in certain sectors will be impacted the TRONC scheme compliance act which is due to come into force on the 1^st October 2024. If your business manages tips and gratuities, either in the form of cash tips and gratuities or discretionary service charges, you may need to re-evaluate your processes.

If your business needs support adapting to the  Employment (Allocation of Tips) Act 2023, then call Croner on 0800 470 2788 and speak to our award-winning team.

What are tips, gratuities and service charges?

A tip or gratuity is made by a customer either via payment directly to an employee or added voluntarily to a bill. This payment is not mandatory and can be paid via cash, cheque, credit or debit card or via a digital payments service, these tips are typically paid at around 10-15% of the overall bill amount.

Tips or gratuities are normally made by a customer in recognition of good service and typically intended for a customer-facing member of staff.

A service charge is a fee that is added to a customer’s bill by default and this will be clearly defined. In some instances the service charge is voluntary, meaning the customer is not obligated to pay, or it may be mandatory. Mandatory service charges are normally paid to employees with national insurance contributions due.

Employers may choose to allocate tips via a tronc scheme.

What is a tronc?

A tronc scheme is a specific arrangement used to equally distribute tips, gratuities, and/or service charges. This allows gratuity disbursements to be distributed fairly and ensure all members of the service team receive a share.

If your business pays your staff through a tronc, the person who operates the tronc will be called a troncmaster. If correctly set, this person will run a payroll and report to HM Revenue and Customs.

What changes with tronc?

With the new legislation, tips paid by cash and card will be protected, and will make sure that the tips go to the employee without deductions from employers. Any tip that a business receives needs to be allocated fairly, and all the workers are protected by the legislation, this will include those on a zero hour contract.

If an employer fails to comply with the tronc scheme they could face fines of up to £5000 per employee.

What does this change mean for employers?

Employers should now implement a written policy that outlines the allocation of qualifying tips, and how the business will distribute them. Having this policy written down will allow employees and employers to refer back to it at a later date if needed. This is also a legal requirement. Employers should also keep records of how the tips are allocated, the new law states that employees can request the information about the tipping records every three months. If an employee does make the request, employers will have up to four weeks to show the records. If any of the records show that the tips haven’t been allocated fairly, it could lead to the records being used as evidence in a tribunal claim.

What is a troncmaster?

A troncmaster is the person responsible for ensuring tips, gratuities, and service charges are shared equally via tronc payments through the scheme and additionally responsible for ensuring correct financial reporting to HM Revenue and Customs.

As an employer, you are responsible for the decision to appoint a troncmaster, as well as the decision to implement a tronc system.

Due to the potential introduction of the Employment (Allocation of Tips) Act, there is a growing demand for independent troncmasters who are not employed by your business. Tronc payments can carry a certain amount of administration and an independent troncmaster can ensure compliance with everything from corporation tax, income tax and other tax considerations.

What are the benefits of a tronc scheme?

There are a number of benefits:

Employee Morale and Retention

Employers can set up a truly independent scheme, free from employer influence, which is run entirely for the benefit of staff to ensure tips are properly managed.

Cost

A tronc scheme can be tax effective. There are significant savings available (subject to HMRC requirements) to staff and businesses through exempt National Insurance Contributions.

Compliance

Make sure your staff receive tips via a tronc scheme, allowing them to get up to 100% ownership of tips and gratuities by being compliant with the pending Employment (Allocation of Tips) Act.

Can employers act as a troncmaster?

As an employer, you are permitted to perform the role of troncmaster. That means employers, business partners or company officials, such as directors, can be a troncmaster. The caveat is that if a company official performs this role then they are considered to be making payments as though they were the employer. This means all tips must be made via the employer’s payroll.

How can Croner help with a tronc?

Croner are here to support you with a range of solutions such as advice on service charges and managing tips with 24/7 advice. Find the perfect balance in your business to maintain and motivate staff by calling 0800 470 2788.