The Employment (Allocation of Tips) Act 2023 has introduced significant changes to how tips, gratuities, and service charges are handled in the UK hospitality industry. Although the legislation does not stipulate the need for a tronc scheme, the requirements of the legislation, do have an impact on how tronc scheme can be run.
So, rather than wading through the legislation, I have broken down what changes and modifications the legislation means for tronc arrangements, existing and new.
What is a tronc scheme?
Before diving into the changes, let’s clarify what a tronc scheme is.
A tronc is a special pay arrangement used in the hospitality industry where tips, service charges, and gratuities are pooled and then distributed among staff. The system is managed by a designated person called a Troncmaster, who is responsible for the fair allocation of these funds.
Key changes introduced by the act
100% of tips to workers
The most significant change is that employers must now ensure that 100% of all tips, gratuities, and service charges are distributed to workers. Prior to this legislation, some businesses would retain a percentage of tips or use them to cover administrative costs, card transaction fees or losses.
Comment: For many employers, the ‘cost’ of running a tronc scheme was often taken out of the ‘tronc pot’, especially if using a third-party service.
With the new legislation, this is no longer an option, and all fees incurred for Troncmaster services, software fees, or credit card transaction fees cannot be deducted from the tronc pool.
Although this does mean additional costs for employers who may have previously deducted these fees, the cost saving on NIC, especially now that it has risen to 15%, should still result in a net saving.
Holding back part of the tronc pool
It was not uncommon for operators to have, as part of the tronc rules, that a portion of the collected monies would be held back or placed into a fund. With hospitality being such a seasonal business, businesses often used it to ‘top up’ the tronc fund in quieter periods of the year, so there were fewer fluctuations in income for staff.
Other businesses used the held-back pot to fund bonuses at key times of the year.
Comment: The new legislation requires employers to pay tips to workers no later than the end of the month following the month the tips were received. This, in effect, stops the practice of holding back part of the collected tips, however well-intentioned, or liked by the staff, this practice was.
Fair and transparent distribution policy
Employers must now have a written policy on how tips are allocated and distributed. This policy must be fair, and employers need to follow a fair and transparent process when determining how tips are shared among staff.
Comment – Fairness is such a difficult measurement in this respect. However, all employees should benefit from a tronc distribution. Tronc committees play an important role in this respect, as the employees will be responsible for setting the terms of distribution. This has to be fair, takes the responsibility away from the employer and therefore meets the requirements of the Act.
A tronc agreement setting out the terms of each employees’ tronc receipts must be issued by the Troncmaster.
No more pooling of tips across sites
For operators with multiple sites, tronc schemes could pool the tips from the sites and distribute them to eligible tronc members. This acknowledged that there may be some outlets that were far busier and received more tips than others, and this policy ensured that everyone got a ‘fair’ share of all the tips, no matter which site they worked at.
The new legislation explicitly prohibits pooling tips across multiple sites, so tronc schemes doing this are not compliant with the law.
Comment – Tips collected at a specific site must only be distributed among workers at the specific location where they were earned. Therefore, it is vital that the data collected on who is working, when, and where, as well as the tips collected at the site and during the shift, are accurate and robust.
The fund must be split out per site and track exactly which staff work in which site, so they can receive their correct share from that site fund.
Record-keeping requirements
Businesses must maintain records of how tips have been dealt with. These records must be kept for at least three years and should detail how tips were allocated and distributed.
Comment – Businesses must always keep and maintain accurate records. However, this also extends to any Troncmaster that is appointed. As record-keeping is specifically detailed in the Act, there is no exception. The employer must have accurate record of the amount of tips received on behalf of employees, and the accurate processing of those amounts through payroll. This will be based on the instructions from the Troncmaster
Worker consultation
Before establishing or making significant changes to a tronc scheme, employers must now consult with workers who would be affected by these decisions. This gives staff a voice in how their tips are managed.
Comment – This is much easier when there is a tronc committee in place, as the committee will have made the decisions on the allocation of the tips. An accurate tronc agreement will set out the basis of allocation for each individual employee or group of employees.
If there is no tronc committee in place, the Troncmaster will have full access to the records held by the employer, as well as their own records of the distribution.
Right to request information
Workers now have the right to request information about the employer’s tipping record. Employers must respond to such requests within four weeks.
Comment – Most open employers would previously have provided information to employees on the allocation of tips. What the right to request information does is allow the employees to check and confirm their own allocation, but also check and ensure that 100% of tips received are distributed to the employees.
This should put an end to the practice that has gone on for too long, where employers siphon off some of the pooled tips to cover costs or for additional profits.
Different treatment of agency workers
It was usual for agency workers not to receive a portion of the tips or be included in the tronc. They were often paid at a higher rate than employees, which offset not receiving any of the tips.
The new legislation requires agency workers to be included in the distribution of tips and be treated the same as employed workers.
Comment – the agency workers must be included in the tronc scheme, but as the operator does not employ them, the money owed to them should be paid to the agency, and they then distribute it to the agency workers.
The agency is responsible for deducting income tax and NIC, and there are some grey areas currently regarding the interpretation of the new law. With a tronc scheme, Employee NIC is exempt from the tronc payment. However, for agency workers, the agency does not run a tronc scheme, so technically, they should deduct both income tax and employees’ NI from the payment. This is an area where probably a tribunal will determine how this will be applied going forward.
Enhanced enforcement mechanisms
The Act introduces new enforcement mechanisms, including giving workers the right to bring claims to employment tribunals if they believe their employer has breached the tipping regulations.
Comment – The Tribunal system has always been available for disputes, however this is a useful tool now that the Act has formalised the process of collecting, pooling and distributing tips. Employers need to be up to speed with the terms of the Act to ensure that employees are correctly treated and do not therefore open themselves up to any Tribunal cases.
Implications for existing tronc schemes
For Troncmasters
Troncmasters now have additional responsibilities to ensure:
- Complete transparency in how funds are collected and distributed
- Proper documentation of all allocation decisions
- Fair consultation with staff regarding distribution methods
- Compliance with the new record-keeping requirements
For Employers
Employers need to:
- Review and potentially revise existing tronc arrangements
- Implement formal written policies on tip allocation
- Establish consultation procedures with staff
- Set up robust record-keeping systems
- Ensure Troncmasters are properly trained on the new requirements
For Workers
Workers now benefit from:
- Greater transparency in how their tips are allocated
- A voice in the distribution process
- Legal protection against employers retaining tips
- The ability to request information about tip records
- Access to employment tribunals for disputes
The Employment (Allocation of Tips) Act represents a significant shift in how tips are handled in the UK hospitality industry. By mandating fair and transparent distribution processes, the Act aims to protect workers’ rights and ensure they receive 100% of the tips left for them.
For businesses operating tronc schemes, this means adapting existing practices to comply with the new legal requirements and embracing a more open and equitable approach to tip allocation.