Tronc is a method used by restaurants and other hospitality businesses to distribute tips, service charges, and gratuity fees fairly. This is now a legal requirement for employers in this sector, so using tronc can be particularly helpful in ensuring these companies meet their compliance.
What is tronc?
A tronc scheme is a formal system hospitality and restaurant businesses use to fairly pool and share tips, service charges, and other gratuity fees. It is run by an independent troncmaster, who operates a separate PAYE payroll for tips.
Income Tax is deducted from the tips, but National Insurance (NI) can often be avoided on those tips if the employer has no say in who gets what. From October 2024, employers must also pass 100% of qualifying tips to workers, fairly and transparently, and on time. This is in compliance with the Employment (Allocation of Tips) Act 2023.
What is a troncmaster?
Put simply, the troncmaster is the person that is responsible for calculating and sharing tips to employees through a tronc scheme. You can appoint whoever you wish to be the troncmaster, but they must be independent from the business, so they can remain impartial to tax advantages.
Read more: Building and leading a team in hospitality
What are the benefits of using a tronc scheme?
Let’s take a look at some of the benefits your business and employees can experience when using a tronc scheme:
Ensures compliance
Using a tronc scheme helps you to meet your legal obligations - especially since the Tipping Act came into effect in October 2024; requiring employers to pass on 100% of qualifying tips to staff. These tips must be paid by the end of the month and a tronc scheme typically aligns with this timeline. If employers fail to comply with this act, it can have serious consequences for their business, such as employment tribunal claims and having to pay thousands in compensation.
Fewer disputes
Pay can be a sensitive issue in the workplace. With a tronc scheme, you can be sure your employees are receiving their share of tips fairly. Objective criteria is used by the troncmaster to determine allocations, using factors such as hours worked, role, seniority, and level of performance. This helps guarantee that staff feel they receive an appropriate tip.
Stronger morale and retention
When tips are handled fairly and everyone is paid what they deserve, staff have more trust in the business and you as their employer. As a result, this can boost morale and keep employees happy, which can in turn, improve staff retention. It also helps there to be a fairer and better transparency about tips for both front of house and back of house staff.
How do you set up a tronc scheme?
Decide what’s in scope
First things first, you need to decide what’s in scope for tronc. This means determining what type of payments will go into the scheme. For example, this might include card tips, cash tips, and discretionary service charges. Remember to decide which staff positions will be included in these tips.
Consult staff
A tronc scheme benefits both management and your team - so make sure you consult staff and maintain a system with transparency and integrity. Ask employees about how tips are shared and establish what they feel is fair. Involving employees in the process from the beginning will help build trust and prevent disputes occurring later down the line.
Read more: How to calculate PAR level in a restaurant
Appoint a troncmaster
Next, ensure you appoint a troncmaster who can run the operations of your tronc scheme and ensure everyone receives a fair payment. If you appoint someone outside of the business to do this, you could benefit from National Insurance advantages - so it’s best to avoid choosing a director or manager within your company.
Register PAYE for tronc
Your troncmaster will need to register a separate PAYE scheme for tronc with the HMRC. This should be separate from the employer’s payroll - this way it ensures that income tax is deducted correctly from tronc payments. Once you have appointed a troncmaster, notify the HMRC, and then take a step back from the process.
Protect the NIC treatment
Using a tronc scheme can allow employers to benefit from a National Insurance saving. But, they can only receive this if they have no involvement in the allocation of the tips under the scheme. Even an indirect allocation would mean tronc payments become subject to NI, so ensure there is a distinguishable line between the troncmaster and you as an employer.
Determine controls
A tronc scheme can only run smoothly with the right controls in place. To make the operation seamless, include a written allocation of the formulas used to dictate tronc, and ensure records are kept safe and secure. With strong governance, you can protect both business and staff if HMRC were to ever inspect your scheme.
Publish your written tipping policy
You are required by law to publish a written tipping policy. The policy helps promote transparency of tip sharing between you and your staff. The policy must include:
- Which payments go into the tronc
- Which staff are included
- How tips are allocated
- When tips are paid
Integrate with payroll
As the final step in the tronc process, the troncmaster must integrate payments with existing payroll processes. Whilst a tronc scheme is typically run on a separate payroll, the records must still line up with the employer’s existing systems. To ensure this, try to use a dedicated payroll software or an external tronc administrator.
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