If you’re running a hospitality business with a tronc scheme, you’ve probably wondered whether those tip payments need to be included in your auto-enrolment pension calculations. It’s a fair question, especially when you’re trying to get your payroll right and keep both HMRC and The Pensions Regulator happy.
The short answer is that in most properly structured tronc schemes, pension contributions are NOT required on tronc payments. But as with everything in payroll, the devil is in the details.
Why tronc payments are usually exempt
When you’ve got a compliant tronc scheme, one that’s properly set up with an independent troncmaster who decides how tips are distributed, those payments sit outside the normal auto-enrolment rules.
The key criteria for exemption
The Troncmaster, not the employer, controls how tips are allocated. This independence is crucial. If your directors or managers are deciding who gets what, that’s not a proper tronc scheme for pension purposes.
The money never belonged to the employer in the first place. The tips came from customers and went straight into the tronc pool without the employer having control over them, and were distributed via payroll, shown as a separate entry for Tronc Payment. So, even if distributed via payroll, a tronc payment is NOT a payment from employment.
This is a very important factor when considering a pension payment, as only payments from employment are considered as pensionable pay.
When these conditions are met, tronc payments don’t count as “qualifying earnings” for auto-enrolment. That means they’re excluded from the pension contribution calculation entirely. No employer contribution required, no employee contribution deducted.
The exception that proves the rule
Now, here’s where it gets interesting. Not all tip payments are treated equally.
If your business has a tips policy where tips are distributed without a tronc scheme, with management deciding the split, then those payments ARE subject to pension contributions.
This is because the employer has control over both the receipt and distribution of the money. It’s not a tronc arrangement, it’s just tips paid through wages.
In this scenario, you’re looking at the full workstax-efficient tronc schemes.
What the Pensions Regulator says
Here’s something that often confuses people. The Pensions Regulator doesn’t typically issue staging dates to tronc schemes. That’s because, in a proper tronc arrangement, the Troncmaster technically isn’t an employer in the traditional sense for auto-enrolment purposes.
However, you still need to notify The Pensions Regulator that your tronc scheme is exempt from auto-enrolment duties if the tronc is processed through a stand-alone PAYE scheme.
Don’t just assume they’ll figure it out. Get your records straight and make sure the paperwork is filed.
Potential confusion and complications with tax is why we recommend using your existing PAYE to distribute tronc payments. It’s perfectly legal and makes life much simpler for HMRC, the employer and employees. Read more about this in our blog “Why a separate PAYE is unnecessary for tronc schemes”
The three-scenario reality check
Let’s break down how different approaches affect pension obligations:
Scenario 1: Cash tips kept by staff
No employer involvement means no pension duties. Simple as that. The tax is the employee’s responsibility.
Scenario 2: Proper tronc scheme with independent Troncmaster
The gold standard. Tax applies, but no NI and crucially, no auto-enrolment pension contributions required on the tronc payments. Staff still get auto-enrolled based on their regular wages.
Scenario 3: Employer-controlled distribution
Service charges and tips paid through normal payroll, with management deciding the split? You’re treating these as wages, which means full tax, NI, and pension contributions apply. This is the costly route that benefits no one except the Treasury.
Why this matters more than you think
The difference between a proper tronc and employer-controlled tips can be significant. Let’s say you’re distributing £1,000 in tips:
In a proper tronc scheme, your employee receives roughly £800 after tax (no NI deducted). You pay nothing extra as the employer.
Through normal payroll with pension contributions, that same £1,000 costs you employers’ NI (15%) and employer pension contributions (typically 3% minimum). Your employee loses both employee NI and pension deductions from their take-home.
The employee could end up with around £650-700 instead of £800. That’s a substantial difference for someone earning tips
Getting it right
If you’re serious about running an efficient hospitality operation, your tronc scheme needs to be bulletproof. That means:
- Appointing a genuinely independent Troncmaster who isn’t part of your management team
- Ensuring the employer has zero say in how tips are distributed
- Keeping clear records that demonstrate the independence of the arrangement
- Notifying The Pensions Regulator that the tronc is exempt from auto-enrolment if run through a separate PAYE scheme
Get these elements wrong, and HMRC or The Pensions Regulator might decide your “tronc” is really just wages in disguise. Then you’re looking at back payments, penalties, and some very unhappy staff.
Properly structured tronc payments are exempt from pension contributions. But “properly structured” is doing a lot of heavy lifting in that sentence. Half-measures won’t cut it.
If you’re trying to juggle tronc schemes, auto-enrolment, and the rest of your payroll obligations, you’re not alone. Many hospitality businesses struggle with this precisely because the rules are complex and the consequences of getting it wrong are expensive.
At Tips and Troncs, and our sister company Ascend Payroll, we handle tronc schemes day in and day out. We know what works, what doesn’t, and how to structure everything so your staff get their full tips while you stay compliant. No guesswork, no nasty surprises, just payroll done properly.
Because at the end of the day, your staff worked for those tips. They deserve to keep as much as legally possible, and you deserve to run your business without constant worry about whether your payroll is compliant.