Tronc Scheme Savings Explained
More money for your business and employees
Savings from tronc schemes soon add up
A tronc scheme is a legal tax arrangement for managing pooled discretionary tips and service charges.
Customers generously give tips to acknowledge the hard work of the staff in delivering their hospitality experience. They don’t expect deductions to be made or costs incurred because of this tip.
When businesses pay out the tips collected through payroll, this is exactly what happens if there isn’t a tronc scheme in place. Although income tax is due on this amount from the employee, if a tronc scheme is in place, it takes the tip amount outside of National Insurance for both the employee and employer.
Why do you need a tronc scheme to pay tips through payroll?
With a tronc scheme, allocated tips can be paid through the existing PAYE without including the 10% Employee National Insurance Contribution (NIC).
Reducing additional costs for your business
What is an even more significant financial impact, however, is the savings for the business on Employer’s National Insurance, which from April 2025 stands at 15%!
When using a tronc scheme, the amount of tips does not attract Employers’ NIC.
Let’s meet Sarah’s Restaurant
Sarah runs a restaurant business in Manchester with 15 staff. The restaurant brings in on average, around £9000 in tips every month, from customers adding tips to the bill, mostly through card and contactless payments.
With the move from cash tips to card and contactless, Sarah uses the payroll to pay out staff tips with their salary. She doesn’t use a tronc scheme, so the tips are classed as income and taxed accordingly – with income tax and National Insurance.
From April 2025, this would mean that the NI costs incurred on the tips would be…
| Monthly Pooled Tips | £9,000 |
|---|---|
| Monthly NIC costs with Employers’ NIC (at 15%) | £1,350 |
| Monthly staff deductions with Employees NIC (at 8%) | £720 |
Savings if Sarah used a tronc scheme
If Sarah used a tronc scheme –
- The business saves £16,200 per year
- Staff members save £8,640, which, if averaged out between each employee, would be £576 each
- Total savings for everyone of £24,840 per year!
Getting started with a tronc scheme
If you are new to troncs and want to get started saving money. Money that could be better spent on investing in your business and not the taxman’s pockets, then don’t delay.
You can set up a tronc scheme yourself or use the expertise of a third-party Troncmaster such as ‘Tips and Troncs’. We will help you –
- Create the allocation rules based on the operational structure of your business
- Engage with staff
- Create the tronc constitution documentation
- Set up the rules
- Calculate the distribution of tips per employee per pay period
- Send the information to your payroll team (or we can even manage your payroll, too, if required)