If you run a restaurant, hotel, bar, or any hospitality business where tipping is common, you’ve likely grappled with the question of how to fairly and efficiently distribute tips among your staff.
For many, a tronc scheme is the answer.
What is a tronc scheme?
A tronc scheme is a HMRC-approved, independent arrangement for pooling and distributing tips, gratuities, and service charges to employees. The word “tronc” comes from the French word for “collecting box.”
What makes it special is that it’s managed by an independent person called a “Troncmaster,” who operates separately from the employer’s payroll.
The key benefits
Significant tax savings
This is the headline benefit. Tips distributed through a properly run tronc scheme are exempt from National Insurance Contributions (NIC).
- For employers, this results in a 15% savings on every pound distributed through the scheme.
- Employees also save on the 8% NIC, giving them more of the tips in their pay.
- Sadly, income tax must still be deducted from the amounts paid to the employees.
For a busy restaurant chain collecting £12,000 in tips across its sites each month, this will save it £21,600 a year! Check out our simple tronc calculator to see what savings your business and employees could make through a trich scheme.
Fairness and transparency
A well-designed tronc scheme creates a clear, objective system for tip distribution. Rather than tips being distributed arbitrarily or favouritism creeping in, the Troncmaster follows agreed-upon rules.
The recent changes to the legislation governing the distribution of tips dictate that tip distribution must be fair and transparent. By fairness, we mean that all employees benefit from the scheme and receive a payout, on a monthly basis, from the tips collected. This transparency builds trust among staff and reduces disputes about who gets what.
A tronc scheme, by its nature and structure, establishes both fairness and transparency as all staff agree to be members of the scheme and the rules of the scheme.
Improved staff morale
When employees know there’s a fair system in place and they’re receiving the full benefit of customer generosity, morale improves. This is particularly important in an industry known for high turnover rates. Staff who feel fairly compensated are more likely to stay longer and provide better customer service.
Legal compliance
Since 2024, UK law requires that tips be distributed fairly and in full to workers. A properly structured tronc scheme helps ensure you’re meeting these legal obligations while maintaining clear records of all distributions.
Administrative efficiency
While setting up a tronc scheme requires initial effort, once established, it streamlines tip distribution. The Troncmaster handles all the calculations and distributions, removing this responsibility from managers who can focus on running the business.
Flexibility
Tronc schemes can be tailored to your business. Business owners and employees, in conjunction with the Troncmaster, can decide how to weigh different roles, whether to include kitchen staff, and how to handle tips from different sources (cash, card payments, service charges). The scheme can evolve as your business needs change.
Things to consider
Setting up a tronc scheme does require proper structure. The Troncmaster must be genuinely independent. They can be an employee but cannot be directly involved in distributing their own tips. Nor can they have managerial roles or hire and fire responsibilities.
Clear and defined written rules are a necessity, as is the proper keeping of records of tips received and amounts made available to the Troncmaster for calculation and distribution.
One of the common misconceptions is that a separate PAYE scheme is needed. This is not the case. As long as the Troncmaster is responsible for the distribution of the tips, the tips can be processed through the employer’s existing PAYE scheme. The tips payments to the employees will be shown on the payslip as Tronc, and will ONLY be chargeable to Income Tax. For more information on this, check out our blog, ‘Why a separate PAYE scheme is not necessary for a tronc scheme’.
You’ll also want to communicate clearly with staff about how the scheme works and ensure everyone understands the distribution methodology, and they are aware of who the tronc master is and how to contact them.
Is a tronc scheme right for your business?
If your business regularly receives tips or service charges, a tronc scheme is most definitely a good option.
Although there is a cost for using an independent third-party Troncmaster service, like Tips and Troncs, the savings made from not paying Employers’ NI, still leave the business in profit.
Add to that the additional benefits of improved fairness, morale, and legal compliance, and it makes it an attractive option for most hospitality businesses.
One thing to be aware of is that you cannot make any deductions from the tips pool to cover admin costs, such as Troncmaster fees. This was a common practice before the new Tips Legislation, but as of October 2024, staff must receive 100% of the tips (minus tax deductions), so businesses must cover any administrative charges themselves.
The key is to set it up properly from the start, with clear rules and genuine independence for the troncmaster.
In an industry where margins are tight and staff retention is challenging, a tronc scheme offers a way to do right by your employees while also benefiting your bottom line. It’s one of those rare situations where everyone can win.