What we know (and importantly, what no one knows yet!)
The Government issued the Code of Practice (CoP) to accompany the Employment (allocation of Tips) legislation on 29 July 2024. The legislation set out the intention of the law, the code of practice, the day-to-day (layman’s terms) rules and regulations for employers and tronc masters to follow.
With all new laws, the Code of Practice provides the details of how to apply the law, so its publishing was eagerly awaited.
It has taken some time to reach this point; the government first started to look at tips and the allocation of tips back in 2018. Following a Private Members Bill (therefore not official Government policy), Royal Assent was given to the bill on 2 May 2023. It then took a further 18 months or so for the code of practice to see the light of day.
So let’s take a look at this Code of Practice, the good, the bad and the ugly!
The Good
- The Bill ensures that tips, gratuities and service charges paid to the employer by customers must be paid to employees.
- The Bill ensures that 100% must be passed onto the employees without deduction (except a statutory deduction such as Income Tax).
- The tips must be paid out no later than the end of the month after the customer paid the tip.
- There must be a written tips policy in place so that all employees are aware and have access to the terms of allocation or, if a tronc scheme is in place, the rules of the scheme and what they individually will receive.
- Employees have the right to view the record of tips paid to the employee together with the total amount of tips received by and paid out by the employer.
The Bad
- The first point relates to the employer. As the legislation states that 100% of the tips are to be passed onto the employees, the employer cannot make any deduction to cover costs they may incur, such as credit card fees or costs associated with running an external tronc scheme.
- What is meant by ‘distribution in a fair and transparent manner‘? The CoP has a whole section on Fairness and provides factors to consider. However, what is fair to one person may not be fair to another. Fairness is, and must be, subjective. I will discuss this concept of fairness more in the next section.
The Ugly
By ugly, I am referring to all the details that the CoP has failed to clarify or are still open to interpretation or further questions.
The role of a tronc committee
Generally speaking, if there is tronc committee in place, appointed by the employees and/or Troncmaster (but not the employer), the committee is responsible for setting the rules of the scheme.
Can such a committee agree to make a deduction from the tips collected by the employer to cover some of the employer’s costs?
The legislation states that all tips must be passed onto employees without deduction. Can they do what they want if the scheme is the employees’ scheme? The legislation or the CoP does not cover this. This may be one of those issues that will only become clear over time.
Fairness
The second area is the concept of ‘fairness’. The challenge here is what defines ‘fairness’ and how this can be decided. A tronc committee will undoubtedly help if it fairly represents all employees. I have seen tronc committees made up of all Managers, who decide on the distribution of tips. I would say that, in this instance, it isn’t fair, as there isn’t adequate employee representation. A tronc scheme is an employee scheme, as they are the beneficiaries.
Agency Workers
It is now a requirement of the legislation that agency workers are included in the tip distribution. This is one of the most challenging aspects of the new legislation for several reasons.
Agency workers are employed through a third-party agency, not the employer. Before the legislation, it was common practice for agency workers to be excluded from pooled tips, but this was offset by usually having a higher hourly rate of pay.
With the new legislation, the employer must include agency workers in the allocation of tips given whilst they are working at a specific venue. The employer isn’t paying the agency staff directly, however, so they must pay the amount over to the agency. This is where it gets tricky because the agency cannot and does not operate a tronc scheme; therefore, Employers’ and Employees’ National Insurance must be applied to the amount!
This potentially puts agency workers at a financial disadvantage as they are paying NI on the tip – which begs to ask how ‘fair’ this is!
Probation Periods
It is common practice for new employees to be on a probation period. Traditionally, tronc schemes may choose to have in their rules that employees could only be part of the scheme after completing the probation period. With the concept of ‘fairness’, this practice may be questioned as all employees, no matter how long they have worked, contribute to the customer experience and should, therefore, benefit from a share of the tips.
Time will tell if this will be allowed and will probably be settled through the outcomes of tax or employment tribunals over time.
Leave
In the past, we have seen tronc schemes that have excluded absent employees, whether through sickness, annual leave or maternity/paternity. Is that fair?
There is no reference in the legislation or CoP on handling periods of absence, so again, I feel this will be settled through the tribunal system.
The legislation has helped to clarify what was, in reality, a poor situation with contradictory information held within the original guidance in the E24 Tips, Gratuities Service Charge and Troncs booklet.
Over the coming weeks, we will look in more detail at the legislation, the Code of Practice and tronc generally, giving further guidance on all things tronc-related.
Remember, though, that an effective and efficient troncs scheme ensures no Employers’ and Employees’ National Insurance Contributions are payable. An experienced Troncmaster will ensure that the rules are correctly followed and that the employees are fully recompensed for their efforts through the tronc scheme.
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