Tips, service charges, gratuities, call them what you will, they are an established part of the hospitality sector and a much-needed source of income for hospitality workers. When tips were given in cash, most operators handled them with a simple ‘tip jar’ and distributed them as they saw fit. Unfortunately, this was not always in a fair way, nor to the benefit of staff (or some staff).
Inertia is a wonderful thing, and although this has been an issue for many years, it took a change in how customers paid for the service to force a change. With card and contactless payments the norm, it has become easier for people to add a tip to the bill rather than leave cash on the table.
Suddenly, businesses found they had the tips in their bank account, so they looked to pay it out through the payroll. However, this did make this taxable income (which all tips are) and attract National Insurance tax. – a hit for both the employee and employer.
Tronc schemes are nothing new. They have been around since the 1990s and are a legal tax arrangement that ensures that tips distributed through a tronc scheme do not attract National Insurance. Tronc schemes were largely ignored when tips were primarily cash and being informally distributed. But, with the increase in tips being paid out through payroll, suddenly, there is a great deal more interest in tronc schemes and the savings they can bring.
So, if tronc schemes are something you haven’t come across before, or maybe you have heard of them but are not really sure what they are all about, here is a quick roundup of what you need to know.
What’s a tronc scheme?
Think of a tronc as a big pot where all tips go before being shared out. One person (the Troncmaster) manages this pot and makes sure everyone gets their fair share. It’s like having a dedicated tips referee who keeps everything above board. The distribution rules are agreed upon and communicated to all employees so they know precisely how it has been worked out and what share they are due.
Money in your team’s pockets
Here’s the best part – when you run tips through a tronc scheme, your staff pay no National Insurance on their tip money. They get to keep more of what customers give them. With the new Allocation of Tips legislation, this becomes even more important as it states that 100% of tips should go to the employee.
Let’s look at some real numbers. Say a waiter earns £26,000 base salary and receives £6,000 in tips annually:
- Without a tronc: They’d pay £600 in National Insurance on their tips (10% employee NI rate)
- With a tronc: They pay £0 NI on those tips
That’s £600 extra in their pocket each year!
Happier staff, better service
When everyone knows exactly how tips are shared, it creates a better work environment. No more whispers about unfair tip sharing or missing card tips. Your team can focus on what they do best – giving great service to customers.
Legislative compliance
Although the new legislation does not specify the need for a tronc scheme, many of the new requirements are delivered by a tronc scheme.
- Ensuring the maximum amount of tips money goes to the employee
- Fairness around tips distribution rules
- Transparency of the rules
- Accurate record keeping
Running a tronc scheme means you’re playing by HMRC’s rules. Your tips system becomes crystal clear, and you won’t have to worry about tax inspectors asking tricky questions. Everything is recorded, reported, and done properly.
Better for your business
A tronc scheme also takes the tips money out of business income, so it does not attract Employers’ NIC. With the hike in Employers’ NIC in April 2025 to 15%, this is a substantial saving. But that’s not the only financial benefit of running a tronc scheme.
Direct Cost Savings
A restaurant with 20 staff;
- Brings in £120,000 in tips per year
- Savings in Employers’ NIC of £18,000 (Based on 15% ERs) per year
Hidden Cost Savings
The savings go beyond just NI contributions:
- Lower staff turnover (UK hospitality average is 30% per year)
- Average cost to replace a staff member: £2,000 (including recruitment, training, lost productivity)
- If your tronc scheme helps retain just 3 staff members per year, that’s another £6,000 saved
Happy staff who know they’ll get their fair share of tips tend to stick around longer. Less staff turnover means you spend less time and money on hiring and training. Plus, motivated staff usually means happier customers who leave better tips!
Many hospitality businesses using tronc schemes report:
- Higher staff satisfaction
- More transparent tip handling
- Lower staff turnover
- Fewer disputes about tip distribution
- Better tax efficiency
The Bottom Line
A tronc scheme might sound like just another system to manage, but it’s really about creating a fairer workplace. Your staff get more money in their pockets, you save on National Insurance, and everyone knows where they stand with tips.
Want to keep your team happy and stay on the right side of HMRC? A tronc scheme could be your answer. It’s a modern solution to an age-old question: how do we handle tips fairly?