Running a restaurant, pub, or hotel means dealing with tips. Many hospitality businesses use a tronc system to collect and share these tips fairly and economically among staff.
What is a tronc scheme?
A tronc collects all tips and service charges into one pot, then distributes them to staff according to agreed rules. The name comes from the French word for “collection box.”
In the UK, a properly run tronc system saves both employees and employers from paying National Insurance Contributions on distributed tips. Employees save 8% and employers save 15%.
Why businesses use tronc systems
New legislation from October 2024 requires tips to be distributed fairly. A tronc system helps achieve this while offering other benefits.
Fair distribution means everyone who contributes to good service gets a share. This builds team spirit and helps with staff retention. What attracts most businesses in the first instance, however, are the financial savings when tips are paid out through the payroll. The exemption of NICs on tronc payments is a significant saving for both the employer and employee.
Distribution methods
No single method works for every business. Here are the main approaches we see in practice.
Equal distribution
Everyone receives the same amount regardless of role or hours. If there’s £200 in tips among 10 staff, each person gets £20.
This works well for small teams where contributions are similar. The downside is it doesn’t account for different responsibilities or hours worked.
Hours-based distribution
Tips are shared according to hours worked. Someone working 40 hours receives twice as much as someone working 20 hours.
This method suits businesses that mix full-time and part-time staff. It doesn’t recognise different job responsibilities, though.
Percentage-based distribution
Departments receive fixed percentages of total tips. Waiting staff might get 60%, kitchen staff 30%, and management 10%.
This works for larger establishments with clear departments. Fixed percentages don’t always feel fai,r though. The legislation requires employee agreement for this approach. We recommend combining this with an hours-worked element.
Points-based system
Each role receives points reflecting its contribution level. Head waiters might get 4 points, regular waiters 3 points, kitchen staff 2 points, and cleaners 1 point.
With £240 to distribute and 24 total points, each point equals £10. The head waiter receives £40, regular waiters £30, and so on.
This recognises different responsibility levels but can be complex to manage. It also ignores hours worked.
Hybrid methods
Many businesses combine approaches. You might base distribution on hours worked, then multiply by a role factor. Or share most tips by hours, but reserve a small portion for performance recognition.
Choosing your method
Consider these factors when selecting a distribution method.
Business type
Fine dining restaurants often use points-based systems. Casual cafes prefer equal distribution. Hotels typically use percentage-based methods.
Staff structure
Mixed full-time and part-time workers suit hours-based systems. Different skill levels work better with points or percentage systems. Multiple departments need percentage-based approaches.
Fairness and team dynamics
The system should feel fair to everyone and encourage teamwork. Overly complex systems can create confusion and resentment.
Administrative requirements
Consider how much work the system creates. Complex calculations need proper software and oversight.
The Troncmaster role
A Troncmaster must oversee the system to qualify for National Insurance savings. They ensure fair distribution and compliance with legislation.
Business owners, employees with hiring responsibilities, or payroll administrators cannot act as Troncmaster. The role must be independent.
Legal requirements
- Keep records for at least three years.
- Staff must understand how the system works.
- The distribution must be fair and transparent.
The Troncmaster ensures compliance and protects the National Insurance benefits.
Making it work
Communicate the system clearly to all staff. Be transparent about total tips collected and distribution methods. Review the system regularly as your business grows.
Ask staff for input on fairness. Keep detailed records for tax purposes and dispute resolution.
Common problems
Avoid overly complicated systems that confuse staff. It is also important that you don’t change methods frequently without a good reason. Any changes should be in consultation with staff, clearly explained and always maintain proper records.
Make sure you have an eligible Troncmaster. They should be independent of hiring and employment responsibilities, which can be a tough task with an internal Troncmaster, as this tends to exclude most of the senior personnel.
Using an independent third-party Troncmaster service, such as the one provided by Tips and Troncs, is a good solution as it ensures not only expertise but also impartiality. Without this impartiality, you lose the National Insurance benefits and risk compliance issues.
Getting started
The right distribution method depends on your specific business and team. A well-designed tronc system improves staff morale, encourages teamwork, and saves money on National Insurance. Take time to choose the right approach for your business.
If you would like to discuss the best rules for your business, get in touch.