Recent developments in UK employment law have sent ripples through the hospitality industry following the landmark Big Table tribunal case. This decision has significant implications for restaurant groups, hotel chains, and other hospitality businesses that operate tonc schemes, particularly regarding how holiday pay should be calculated.
What is the Big Table case?
The Big Table Group, which operates restaurant chains including Bella Italia, Café Rouge, and Las Iguanas, faced a legal challenge from employees regarding how their holiday pay was calculated. The central issue was whether service charges distributed through a tronc scheme should be included in holiday pay calculations.
Understanding tronc schemes
For those unfamiliar with the term, a tronc scheme is a special pay arrangement popular in the hospitality sector for pooling and distributing service charges and tips to staff;
- Customer tips and service charges are collected by the employer
- These amounts are then distributed to employees through a separate system
- A designated person (the Troncmaster) administers this distribution
- Tronc payments are often processed separately from regular wages
- For a full overview of how a tronc scheme works, read our blog
The legal background
Under the Working Time Regulations 1998, workers are entitled to receive their “normal remuneration” during periods of annual leave. Previous case law had established that normal remuneration includes payments that are:
- Intrinsically linked to the performance of tasks under the contract
- Paid with sufficient regularity to constitute “normal” pay
The question in the Big Table case was whether payments through the tronc scheme met these criteria and, therefore, should be included in the holiday pay calculations.
The tribunal’s decision
The tribunal ruled that service charges distributed through the tronc scheme should be included when calculating holiday pay for Big Table employees because the contract of employment stated that in addition to salary/pay, the employees were entitled to payments from the tronc scheme.
The key findings included;
- Tronc payments were found to be “normal remuneration”
- The payments were effectively contractual, as the contract of employment made specific reference to the tronc scheme
- They were paid with sufficient regularity to be considered part of normal pay
- The payment was from employment and as the Tribunal stated, as payment paid by the employer to the employee, counts for holiday pay calculation.
- Implications for employers
- This decision has far-reaching implications for hospitality businesses in a number of ways.
#1 Financial Impact
Employers using Tronc schemes may now face a financial impact of increased holiday pay costs going forward, potential back-pay claims from current and former employees and a need to recalculate holiday pay for the past two years (or even longer)!
#2 Administrative changes
These changes may also result in some additional or new business administration.
Businesses may wish to remove mention of tronc schemes and payments from the Employment Contracts; this will require a significant amount of HR administration.
If tronc payments are to stay in contracts, payroll systems will need to be updated to incorporate them into holiday pay calculations and better records of all tips and service charge distributions will need to be kept.
This will also impact recruitment, and businesses will need to consider how they mention tronc schemes in job adverts. It is OK to mention a tronc scheme, but it should be made clear that this is administered by an independent Troncmaster. The reason is to establish that the employer has no input into the working of the scheme, aside from the payment being made as a separate item on the payslip.
#3 Legal compliance
Employers should audit their current holiday pay practices and employment contracts to stay compliant. Ideally, they should seek professional advice on the operation of a tronc scheme and how they work with employment contracts.
Legal advice should be sought if you think there may be potential claims.
Worker benefits
For hospitality workers, this decision represents a significant victory:
- Higher holiday pay that better reflects their actual earnings
- Recognition of service charges as an integral part of their remuneration
- Potentially substantial back-pay claims
But is this the final word?
It’s important to note that tribunal decisions don’t create binding precedents like higher court rulings. The Big Table Group could still appeal this decision to the Employment Appeal Tribunal. However, the judgment aligns with the general direction of holiday pay case law in recent years, which has consistently expanded the definition of “normal remuneration.”
Next steps for hospitality operators
If your business operates a tronc scheme, consider taking these steps:
- Conduct an audit – review your holiday pay calculations and tronc arrangements to assess potential liability.
- Consult a tronc expert – get specialised advice on your specific situation.
- Budget for changes – plan for potentially increased costs related to holiday pay.
- Review your service charge model – consider whether your current approach to service charges remains viable.
- Communicate with staff – be transparent with employees about any changes to pay arrangements.
The Big Table tribunal case marks another step in the ever-changing saga of holiday pay regulations. For the hospitality industry, it signals the need for greater attention to how variable pay components are treated for holiday pay purposes. While challenging for employers from a cost perspective, the decision supports the principle that workers shouldn’t be financially disadvantaged when taking their statutory leave entitlements.
By staying informed and proactive, hospitality businesses can stay ahead of these changes while maintaining positive relationships with their workforce and ensuring legal compliance.
In essence, the best approach is to NOT include tronc schemes in contracts of employment. Read our blog ‘Why you should think twice before including tips in employment contracts’.
Tronc schemes must be administered by an independent Troncmaster. This can be someone internal, but there are strict criteria for who that can be, or it can be an independent third party like the Troncmaster services provided by Tips+Troncs.
The Troncmaster must have a written agreement with the employees highlighting the basis of the distribution of tips. This must be separate from the contract of employment to achieve the employer and employee NIC savings from a tronc.
If you are unsure about holiday pay and tronc schemes, or would like to discuss tronc schemes in general, please contact us and we are happy to discuss and answer your queries.