Tips are a big deal in restaurants and hotels. Staff count on them, and owners need to handle them properly. Plus, the Employment (Allocation of Tips) Act 2023 sets down regulations and rules about how tips can be distributed.
Although the new legislation does not require tips to be distributed through a tronc scheme, tronc schemes do help with many of the compliance requirements, plus they save on tax for the employer and employee. Win, win.
There is a great deal of confusion about tronc schemes, especially about some of the details of operating one. In this blog, we are exploring the basics and rules and also some of the most common questions and mistakes companies make.
What is a Tronc Scheme?
A tronc scheme is a system for collecting and sharing tips fairly. It’s been around in the UK for ages. The name comes from the French “tronc des pauvres” – a collection box for the poor.
Put simply, a tronc scheme is a formal, HMRC-compliant way to pool and share tips. It’s separate from the main payroll system, has its own rules, and is managed by a Troncmaster.
Think of it as a mini-system just for handling the extra money that customers leave as thanks.
In a typical setup, all discretionary tips go into one pot. This includes cash tips, card tips, and service charges, as long as they are not a mandatory addition to the bill and customers have the choice to pay. Then, the Troncmaster shares them with all members of the tronc scheme (your eligible staff) based on agreed-upon rules.
What makes it different from just splitting tips at the end of a shift? It’s official, fair and consistent. Staff know how the tips are distributed and why they are getting their share.
The other big difference is that tips distributed through a tronc scheme do not attract National Insurance tax for the employee or employer.
What is the role of a Troncmaster
Troncmaster may seem like someone giving themselves a fancy title, but it is the legal role and name for the person running the whole tronc show. This person is responsible for setting the distribution rules (although that can be in consultation with staff members) and overseeing the arrangement to share the monies in the tronc scheme to employees.
The Troncmaster must be independent of the business owner. Often it’s a trusted senior staff member, but it can also be an outside person.
One of the challenges of having an internal Troncmaster, however, is that the person cannot have hiring responsibilities, which may exclude SnrLeadershipp, HR, and even Restaurant/Bar Managers. This is the reason many operators turn to independent third-party services, such as Tips and Troncs, to act as their Troncmaster.
The responsibilities of a Troncmaster include:
- Deciding on the rules for how tips are distributed to eligible employees. This can be a simple percentage split based on hours worked or more complex, such as points-based systems.
- Gaining agreement from the employees on these distributions
- Communicating these rules to employees (transparency of the scheme)
- Collecting the tips and service charges
- Maintaining records
- Dealing with any questions or disputes from staff
For larger, more complex tronc schemes, a tronc committee can be set up with representatives from the workforce. The Troncmaster is also responsible for heading up the Tronc Committee.
Benefits of a tronc scheme for employers
A tronc scheme may seem like yet another administrative burden, but the financial and compliance benefits make any additional administration worthwhile.
With the majority of tips and service charges now added to card payments, the money is landing in the business bank accounts, and most employers are choosing to pay out through payroll. Without a tronc scheme, these tips are classed as business income and are taxed accordingly!
When tips are handled through a proper tronc scheme, the business doesn’t pay National Insurance contributions on that money. That’s a 15% saving right there.
Examples of NIC savings
A multi-site restaurant chain bringing in £40,000 of tips per month would save £6,000 in NIC every month, or £72,000 a year!
An independent bistro pub collects £12,000 in tips a month. They would save £1,800 a month or £21,600 a year.
What could your business do with savings like these?
Another benefit is that the owner isn’t directly involved in who gets what tip money. This avoids accusations of favoritism or unfairness.
A tronc scheme also makes compliance easier. The new Allocation of Tips legislation requires accurate record-keeping, a written Tips Policy and clear communication to staff. Underlying the legislation is the principle of ‘fairness’, although the means is not defined. What can be said is that a tronc scheme fulfills all these and can be seen as ‘proof’ of fairness in the distribution of tips.
One of the less tangible but no less important benefits of a tronc scheme is its impact on staff morale, which then has a knock-on effect on recruitment and retention.
Places with fair, transparent tip systems tend to keep their staff longer. Good people want to work where they know they are being treated fairly.
Lastly, customers like it. When you can honestly tell customers that “all service charges go directly to staff through an independent tronc scheme that maximises the amount they receive,” they feel better about paying those charges.
Benefits for employees
Staff have even more reasons to like a good tronc scheme.
The big one is fairness. A well-run scheme makes sure everyone gets their proper share. Although the new legislation has limited some of the flexibility that was possible through a tronc scheme, such as being able to pool the tips from multiple venues, so staff working in less busy venues received the same share as those in higher traffic sites.
There are financial savings for employees, too. Income from tips attracts income tax just as wages do, and if tips are paid directly through the payroll without a tronc scheme, they also attract employees’ National Insurance. With a tronc scheme, the tips element is exempt from NIC, which saves 10% tax. If an employee receives £500 in tips a month, that is an extra £50 in their pocket.
A tronc can also be far more inclusive of other team members who contribute to the customer experience. Although the customer may be giving the tip to the server, when a tronc is used, the scheme can decide to include other team members who are not customer-facing, such as chefs, kitchen staff, cleaners, and admin staff. This creates better teamwork.
A tronc scheme avoids awkward situations. There are no more arguments about who served which table or who deserves what. The system handles all that, and staff are fully aware of the distribution rules and can be confident that they are being followed.
Setting up a tronc scheme
Starting a tronc scheme isn’t rocket science, but you need to get it right.
- Choose your Troncmaster wisely. This person needs to be trusted by everyone. They should understand the business, but make independent decisions and not have hiring responsibilities. You can use a third-party Troncmaster service to ensure absolute independence and impartiality..
- Create clear rules. Will tips be shared equally? Based on hours worked? Role? Seniority? There’s no right answer, but the rules must be transparent and fair and work with your business operations and workflows.
- Establish which employees are eligible to be part of the tronc scheme and then ask them to agree to the tronc rules, or tronc constitution as it is sometimes known.
- Set up a process for collecting and distributing the tips. You may decide on a separate bank account or use software to track everything.
- Decide if you are going to use a separate PAYE or your current PAYE. There is some confusion about this, but you do not need a separate PAYE. It can go through your existing PAYE as long as it is clearly separated from normal income and the correct NI is applied. Some organisations like to have a totally separate PAYE, but this does mean more admin as you are effectively running two payrolls every period, and it can cause confusion with multiple tax codes for your employees.
Tronc management best practices
What makes a tronc scheme work well? Here are some tips from successful places:
- Consult with staff. If staff members are included in the decision on the allocation rules there will be better engagement and a demonstration that fairness is being applied.
- Keep it transparent. Everyone should know how the money is divided. Make sure it is part of your onboarding and staff handbook. It is also worth sending out reminder communications.
- Choice of Troncmaster. The role of Troncmaster has many responsibilities, so your choice of who that will be is crucial. You need to ensure compliance with the rules of tronc schemes and consider the burden placed on an individual, if it is an employee. You also need to mitigate any risk of what would happen if that person leaves. Considering a third-party company is often a lower-risk option.
- Keep accurate records. Make sure you have a system in place to keep records of monies in and out. This is a requirement of the Troncmaster and is also required as part of the Allocation of Tips legislation.
- Review it regularly. As your business changes, your tronc system might need tweaking too.
- Tell customers. With many service charges now going on bills and card payments, many customers worry that their tip is going to the people they intended it to. Letting your customers know it is handled fairly by a tronc scheme gives them the confidence to keep tipping.
Options for your tronc scheme rules
The rules for structuring the distribution of your tips are very flexible. The decision is the Troncmasters, but to ensure a fair tronc scheme that helps staff morale and motivation rather than undermining it, it should align with your business’s operations and the team you employ. Generally speaking, the smaller and simpler the business model, the simpler the tronc scheme rules can be. For larger, more complex businesses, the rules may need more nuances.
One of the most popular tronc systems uses ‘actual hours’ rather than contracted hours, as this recognises the hours staff members actually work. From this, you could choose an even distribution amongst staff or add additional layers of complexity, such as;
- Splitting the tronc pot proportionally to different teams, i.e front-of-house, kitchen, housekeeping.
- Weighted for seniority or long service
If you want to have multiple criteria, then a points system could be the way. Criteria are set, like the options above, and then points are allocated based on these criteria, and their share of the tips is based on the points they have.
Legal updates and future trends
The rules around tipping keep evolving. Stay informed.
- Recent UK legislation strengthens workers’ rights to receive tips in full, making compliant tronc schemes more important than ever.
- Some businesses are moving toward completely cashless tipping. This makes tracking easier but requires solid systems.
- More places include back-of-house staff in tip pools. This reflects a growing recognition that great food is as important as great service.
Whatever changes come, the basic principles stay the same: fairness, transparency, and proper tax handling.
Common questions about tronc schemes
Here are answers to questions we hear often:
“Can the business owner be the Troncmaster?”
The simple answer is ‘no’. To avoid National Insurance liability, employees must be paid outside employment, so the ‘pay’ from tips is not part of employment. The implication for Troncmasters is that no one in that role can be a leader of the business or have the power to employ people.
“How often should tronc be paid out?”
Most places do it weekly or monthly, alongside regular payroll. The new tips legislation also stipulates that any tips must be paid by the end of the month after they were given, so if tips were given in August, they must be distributed to staff by the end of September.
“What percentage should go to kitchen staff?”
Who is included in the tronc scheme and what proportion of the tips they receive is up to the Troncmaster to decide. There’s no legal requirement, except that it should be ‘fair’, but most establishments providing food understand that there are many different team members involved in delivering the service to customers and will include back-of-house teams such as the kitchen.
“Are all tips and service charges included in a tronc scheme?”
Any discretionary tips, service charges, or gratuities that are not fixed charges should be included in the tronc scheme.
“What records should the Troncmaster keep?”
All tip income, distribution calculations, and payments should be documented for at least three years.
For additional Tronc FAQ, visit our FAQ section.
A good trust scheme benefits everyone. Owners save on National Insurance and avoid tip disputes. Staff receive fair, transparent tip distributions and save on NI deductions. Customers feel confident that their extra money goes to the right people.
Setting up a tronc scheme takes some effort. However, the payoff in staff satisfaction, tax efficiency, and legal compliance makes it worthwhile.
Whether you’re an owner thinking about improving your tip system or an employee wanting to understand your rights, I hope this guide has helped.
The most successful hospitality businesses see tronc not just as a tax matter but as part of their overall culture of fairness and transparency.
Got more questions about tronc schemes or need help setting one up? Please get in touch.