Tronc Schemes Explained
Funny word, great savings
Tronc schemes - what’s it all about?
For many hospitality businesses, tronc schemes may seem new, but they have been around for many decades.
The term tronc comes from the French word for ‘collection box’. In simple terms, a tronc is an HMRC payment arrangement that allows businesses to fairly distribute pooled tips, service charges, and gratuities received from customers to their staff through payroll. At ‘Tips and Troncs’ our experienced team specialises in tronc schemes offering both fully managed tronc schemes and consultancy solutions.
Why do you need a tronc scheme to pay tips through payroll?
The short answer is that you don’t, but you and your staff will be losing money if you don’t.
Let’s set the scene.
The majority of tips now come in through card and contactless payments, whether through customers adding a tip or discretionary service charges added to the bill. Tip monies are now ending up in business bank accounts.
The easiest way to get this money into the hands of the employee is to use the payroll and existing PAYE scheme. So you add it to the employee salary, and this income then attracts both income tax and National Insurance deductions. Plus, because it looks like business income, you must also pay Employers’ NI on the amount.
But here’s the thing.
Although the tip amount should be subject to income tax, it doesn’t have to attract National Insurance. If discretionary pooled tips are allocated and paid out through a compliant tronc scheme, there are no NI deductions for staff and no NI costs for you as the employer.
This legal cost-saving option can save tens of thousands of pounds in NI over the year.
How much could a tronc scheme save your business?
Imagine you are a small restaurant chain that brings in £30,000 a month in tips. If you just payroll this and payout through the PAYE, you will pay £4,140 in Employers’ NI.
That’s nearly £50K a year!
From April 2025 and the hike in Employer’s NI, this goes up to £4,500 a month and £54K a year.
Start saving today! Contact ‘Tips and Troncs’ for a no obligation chat.
Benefits of a tronc scheme
In addition to the financial benefits of a tronc scheme, there are other benefits to running a scheme to allocate your tips pool;
- Legal Compliance - although not a requirement of the new legislation, tronc schemes help deliver on many of its requirements.
- Fair distribution - an essential part of a tronc scheme is employee consultation and the setting of the rules of allocation of the collected tips to employees.
- Staff morale - years of horror stories about operators retaining tips or distributing them unfairly can negatively affect staff morale. With a tronc scheme, these rules are agreed upon and followed.
The role of a Troncmaster
Every tronc scheme needs someone called a Troncmaster to set the rules and manage the scheme.
Picking the right person to be the Troncmaster is a minefield. Choosing someone senior, like the owner, director, or manager, might seem like a good idea. However, some rules around what makes a tronc scheme mean this type of person can’t be the Troncmaster and actually makes the scheme non-compliant.
The Troncmaster must not be involved in running the business, so owners and senior managers are out.
Another important detail that many businesses miss is that National Insurance savings only apply if the tips are handled outside of normal employment. This means the employer cannot influence the person deciding on how tips are shared (the Troncmaster).
If the Troncmaster has leadership or hiring duties, they are seen as an extension of the employer and won’t be considered independent.
Finding someone within your business with the right skills but doesn’t have these responsibilities is tough. That’s why many hospitality businesses choose third-party Troncmaster services like ‘Tips and Troncs’ to manage their tronc scheme, as there can be no question of their impartiality.