Managing tips fairly whilst staying compliant isn’t just about ticking boxes anymore. From 1 October 2024, when the Employment (Allocation of Tips) Act 2023 became fully enforceable, fairness and transparency became legal requirements, not nice-to-haves.
And with the Employment Rights Act 2025 bringing even greater scrutiny to workplace practices, getting your tronc scheme right has never been more critical.
At Tips and Troncs, we’ve worked with all types of hospitality businesses. Multi-site restaurant groups, boutique hotels, and large five-star operations. We understand that tronc schemes can feel like a minefield, especially when you’re already juggling seasonal workers, high staff turnover, and variable working patterns.
But, when you get your Troncmaster and tronc scheme right, the benefits go way beyond National Insurance savings. You’ll build a fairer workplace, boost team morale, and create a competitive edge in an industry where great staff are hard to find.
All whilst meeting the law’s strict requirements.
Why this matters more than ever
Let’s be clear about what’s changed.
The Employment (Allocation of Tips) Act 2023 fundamentally altered how tips must be handled. It’s no longer enough to distribute tips in a way that seems reasonable to you. The Act mandates that:
- 100% of qualifying tips must be allocated to workers (no deductions except lawful tax)
- Tips must be distributed fairly
- Payment must be made by the end of the month following receipt
- Everything must be managed transparently with a written policy
The statutory Code of Practice provides detailed guidance on what “fair” and “transparent” actually mean. Employers must have regard to this Code, and employment tribunals will use it as evidence when assessing compliance.
Workers now have real power. They can request tip records, challenge unfair allocations, and pursue claims through employment tribunals. Tribunals can order revised allocations, compensation payments, and awards of up to £5,000 per claimant.
The Employment Rights Act 2025 strengthens these protections further. It requires employers to consult with trade union representatives, elected worker representatives, or workers directly before producing or revising their written tips policy.
This isn’t just a procedural requirement. It’s part of a broader shift toward giving workers genuine voice and influence over workplace practices that affect them. With these specific provisions likely taking effect in October 2026, businesses need to prepare now.
The Troncmaster – your compliance cornerstone
This legislative context makes your choice of Troncmaster absolutely critical.
This isn’t just another administrative role. It’s the foundation upon which your entire compliance strategy rests. The Troncmaster is responsible for distributing and accounting for all tips, gratuities, and service charges flowing through your business.
More importantly, they’re the custodian of fairness and the guarantors of transparency that the law now demands.
What makes a good Troncmaster?
Independence is non-negotiable
The Employment (Allocation of Tips) Act emphasises that fair distribution requires independence from employer control. HMRC has always been clear that the Troncmaster must operate independently for the National Insurance exemption to apply.
But now the tips legislation adds another layer. Employers cannot dictate how tips are distributed.
This means directors, senior management, and anyone involved in hiring decisions are automatically ruled out. Your Troncmaster must be genuinely independent, not just on paper, but in practice.
If employer influence can be demonstrated, you risk losing the NI exemption and facing tribunal claims for unfair allocation. Not to mention an expensive NIC bill from HMRC.
Transparency is legally required
Under the Act, employers must maintain a written tipping policy, keep detailed records for three years, and provide workers with access to these records on request (limited to one request per three-month period).
Your Troncmaster needs to embrace this transparency requirement. That means;
- Maintaining meticulous documentation
- Communicating openly about distribution methods
- Ensuring every worker knows how to access the information they’re entitled to see.
Workers should know who the Troncmaster is, understand how decisions are made, and feel comfortable raising concerns without fear. The Troncmaster will always be the first port of call for any employees’ queries about the tronc scheme.
Understanding fairness principles is essential
The Code of Practice requires that tips are allocated using objective criteria, applied consistently across comparable roles, without discriminatory practices, and in ways that recognise everyone who contributes to customer service.
Your Troncmaster must understand these principles and apply them thoughtfully. They need to recognise that “fairness” under the Act means considering factors like hours worked, roles performed, and contribution to service, not arbitrary decisions or management preferences.
When agency workers, front-of-house staff, and kitchen teams all contribute to the customer experience, fair allocation becomes a complex balancing act that requires judgment, consistency, and defensible reasoning.
Check out our blog “How do we define fairness in a tips allocation policy?”
Dispute resolution skills matter
With workers now having clear routes to challenge tip allocation through tribunals, your Troncmaster must be equipped to handle concerns professionally and fairly.
The Code of Practice requires fair procedures for resolving disputes, including giving equal weight to queries from agency workers and permanent staff. Your Troncmaster needs the emotional intelligence to listen, the judgment to make fair decisions, and the communication skills to explain those decisions in ways
that can withstand scrutiny.
This can prove difficult for an internal Troncmaster, given the personal relationships they have with colleagues they work with every day.
If you are looking at who to appoint as your Troncmaster, our blog “Choosing the best Troncmaster for you” offers some useful advice.
Attention to detail has legal consequences
When tribunals can compel production of tipping records and assess whether your scheme meets fairness requirements, documentation matters enormously.
Your Troncmaster must maintain meticulous records of all tips received (cash, card, and discretionary service charges), detailed documentation of distributions, accurate PAYE processing, and audit trails that would satisfy both HMRC and employment tribunal requirements.
Sloppy record-keeping isn’t just poor practice. It’s evidence that could be used against you.
Your three options for appointing a Troncmaster
Given these heightened requirements, choosing the right approach becomes crucial.
Option 1: Internal appointment
This might be a trusted senior employee, like a head waiter or restaurant manager. Someone below the hiring and firing line but experienced enough to command respect.
The advantages: They know your operation inside out and have direct access to staff.
The disadvantages: It adds a significant administrative burden to someone already busy, requires them to maintain tribunal-standard documentation, exposes them (and you) to personal liability if they get it wrong, and creates succession planning challenges if they leave.
More critically, you need absolute confidence in their independence and their understanding of what fairness means under the Act, not just what it meant under old informal practices.
Option 2: Employee committee plus Troncmaster
This approach has gained traction because it explicitly demonstrates worker involvement in decision-making, something the Act encourages.
A tronc committee of staff members who work alongside the Troncmaster to ensure diverse perspectives, create strong buy-in among workers, and demonstrate that allocation decisions aren’t employer-controlled.
However, this approach requires clear governance structures, formal terms of reference that align with the Code of Practice, documented decision-making processes that could withstand tribunal scrutiny, and mechanisms for resolving disagreements within the committee.
It can also become unwieldy if not properly managed, and turnover in committee membership creates continuity challenges.
Option 3: Independent third-party Troncmaster
The role of Troncmaster, setting up the scheme and allocating the tips in accordance with the tronc scheme rules, is taken on by a third-party business, such as Tips and Troncs.
The advantages:
- Complete independence from your business (eliminating any question of employer control)
- Deep expertise in HMRC requirements and the Employment (Allocation of Tips) Act
- Robust systems designed specifically for compliance and transparency
- Experience in handling disputes and tribunal processes
- Removal of the administrative burden from your team
- Some providers can also manage your payroll at the same time.
The fees are offset by peace of mind, reduced legal risk, assurance that your scheme will withstand scrutiny, and freedom for your team to focus on hospitality rather than administrative compliance..
What makes a great tronc scheme
The Troncmaster might run your tronc, but the scheme itself needs to be built on solid foundations. Here’s what separates compliant schemes from those heading for trouble.
Full compliance with the Employment (Allocation of Tips) Act
Your scheme must:
- Ensure 100% of qualifying tips go to workers (minus lawful tax deductions only, no credit card fees, admin fees, etc)
- Distribute tips by the end of the month following receipt
- Apply fair allocation methods that align with the Code of Practice
- Maintain comprehensive records for three years
- Provide workers with access to those records on request
- Have a clear written policy accessible to all workers
These aren’t guidelines. They’re legal requirements with tribunal remedies for non-compliance.
Meaningful worker consultation
The Employment Rights Act 2025 will make consultation with workers mandatory before producing or revising your tips policy. Even before that requirement takes effect in 2026, the Code of Practice already encourages meaningful worker input.
A great tronc scheme involves workers in setting distribution rules, provides clear mechanisms for raising concerns, considers feedback when reviewing policies, and demonstrates that worker voices influence decisions, not just token consultation.
When staff have genuine ownership, compliance follows naturally because the scheme reflects what workers themselves consider fair.
Transparent and objective distribution rules
The Code of Practice is explicit – allocation must use objective criteria applied consistently.
Your tronc scheme should have documented guidelines that everyone understands, whether tips are distributed based on hours worked, by job role or seniority, equally among eligible employees, using performance-based models, or through combinations of these factors.
For ideas on the options for your tips distribution rules, read our blog “Different ways to share tips through tronc systems.”
Critically, whatever you choose must be clearly documented, consistently applied, developed with worker input, defensible as fair under the Code of Practice, and free from discriminatory effects, even unintentional ones.
Robust record-keeping
Under the Act, you must maintain records of all qualifying tips received (by source and date), amounts allocated to each worker, dates of payment, and the calculation method used.
The bulk of this information will be held by the independent troncmaster. Workers can request these records, and tribunals can compel their production.
Your tronc scheme needs systems that make this documentation automatic, not an afterthought. If you’re working with professional troncmaster services, this becomes their responsibility. One less thing keeping you up at night.
Recognition of all contributors
The Code of Practice emphasises that tips reflect appreciation for the overall customer experience, not just front-of-house service.
A compliant and fair tronc scheme ensures kitchen teams, bar staff, cleaning crews, and other behind-the-scenes workers all receive appropriate recognition. This creates a culture where everyone works together rather than competing for tips.
A happy workforce is a productive workforce. Customers are more likely to return if all staff members are pulling in the same direction.
Seamless payroll integration
Your tronc needs to work smoothly with your existing payroll to ensure correct tax treatment under PAYE, timely payments that meet the Act’s monthly deadline, accurate reporting to HMRC, and proper documentation for both tax and employment law purposes.
One of the biggest misconceptions is that a tronc scheme requires a separate PAYE scheme. While some operators choose to go down this route, it is not a hMRC requirement. Read our blog “Why a separate PAYE scheme is unnecessary” for more information on how you can successfully run your tronc payments through your current PAYE scheme.
Tips and Troncs are part of the Ascend Payroll group; we fully understand hospitality payroll. We know how to make these systems deliver the compliance evidence you need.
The real benefits of getting it right
When you have a good Troncmaster managing a well-designed tronc scheme that meets the new legislative standards, the benefits extend well beyond avoiding tribunal claims.
Legal protection and reduced risk
With the Employment (Allocation of Tips) Act fully in force and workers empowered to challenge unfair practices, a properly structured tronc scheme protects you from tribunal claims for unfair allocation, penalties for failing to distribute tips correctly, reputational damage from public disputes, and enforcement
action as the new Fair Work Agency begins operations.
The tribunals have broad powers. They can order you to revise your allocation policy, make payments to workers who’ve been treated unfairly, and award compensation of up to £5,000 per claimant.
A compliant scheme is your shield against these risks.
Significant cost savings
That National Insurance exemption still saves employers 15% on tips and employees 8% in NI contributions when your scheme is properly structured.
For a business distributing £50,000 in tips annually, that’s potentially £7,500 saved in employer NIC alone.
If you would like to see how much a tronc scheme could save your business and your employees in tax, take a look at our easy Tronc Calculator.
Competitive advantage in recruitment and retention
The legislative framework makes fair tip distribution a worker’s right rather than employer discretion. When potential employees understand that your business not only complies with the law but also embraces transparency and fairness, it makes you more attractive.
Job seekers increasingly research employer practices before applying. Those Google reviews where staff praise fair tip distribution matter.
Similarly, existing staff who feel their gratuities are handled fairly and transparently are less likely to look elsewhere. In an industry plagued by recruitment challenges, this competitive edge is invaluable.
Improved staff morale and teamwork
Transparent, fair systems that workers trust create a positive workplace culture that customers can sense.
When everyone knows the rules, trusts they’re being applied consistently, sees that their input shaped the policy, and feels their contribution is recognised, it shows. Happy staff deliver better service, which generates more tips. A virtuous cycle that starts with getting the fundamentals right.
Future-proofing against regulatory change
With the Employment Rights Act 2025 bringing greater scrutiny to workplace practices, businesses that already embrace transparency and worker consultation will adapt more easily.
Those who’ve built their schemes around the bare minimum or looked for ways around the rules will face costly restructuring and cultural resistance when requirements tighten further.
Common pitfalls that now carry legal consequences
We’ve seen plenty of tronc schemes that looked fine under old informal practices but fail spectacularly under the new legislative framework.
Employer control over tip allocation
This directly violates the Act’s requirements and eliminates the NI exemption.
If management decides how tips are distributed, if allocation rules can be changed unilaterally by the employer, or if there’s no genuine independence in the Troncmaster role, your scheme isn’t compliant.
Some businesses think they can maintain a facade of independence whilst actually controlling decisions behind the scenes. Tribunals will look at substance, not form.
Inadequate consultation with workers
This will become a specific breach once the Employment Rights Act 2025 provisions take effect. But even now, failing to involve workers in developing distribution rules, ignoring concerns raised about fairness, or making significant policy changes without discussion creates evidence that allocation isn’t genuinely fair.
When you end up in a tribunal, a lack of consultation strongly suggests your allocation reflects employer preferences rather than objective fairness principles.
Poor record-keeping
Without comprehensive records, you cannot prove compliance when challenged, you risk penalties for failing to provide records when workers request them (as they’re entitled to do under the Act), and you’ll struggle to demonstrate that your allocation method is applied consistently.
In tribunal proceedings, poor records work strongly against you. Tribunals may conclude that the absence of documentation indicates unfair practices you’re trying to hide.
Using tips to subsidise wages
Tips cannot be used to meet National Minimum Wage requirements. This has been law since 2009, but enforcement is increasing.
If you’re relying on tips to bring workers up to minimum wage, HMRC will charge 200% of the underpaid amount as a penalty, plus additional penalties for underpaid tax and employer NIC. The employment tribunal may also make findings about your overall approach to treating workers fairly.
HMRC will name and shame employers who breach National Minimum Wage rules.
Failing to update policies
Some businesses implemented tronc schemes years ago and haven’t reviewed them against the Employment (Allocation of Tips) Act. Others have updated their written policy but not their actual practices.
This gap between policy and practice creates serious legal risk. Your written policy sets the standard by which your performance will be judged. If you’re not actually following it, you’re building evidence of breach.
Discriminatory effects
The Equality Act 2010 applies to tip distribution. If your allocation method systematically disadvantages workers with protected characteristics, even unintentionally, you face discrimination claims.
For instance, if part-time workers (predominantly women in many hospitality settings) receive proportionally less in tips than their hours worked would suggest, that’s potential indirect sex discrimination.
Your distribution method needs assessment for equality impacts, not just surface-level fairness.
Making it work in practice
Where do you start if you’re setting up a new tronc scheme or bringing an existing one into compliance?
Audit your current position honestly
Ask yourself:
- Does your scheme meet all requirements of the Employment (Allocation of Tips) Act?
- Can you demonstrate genuine independence of your troncmaster?
- Do you have comprehensive records for the past three years?
- Is your written policy accessible to all workers?
- Would your allocation method withstand scrutiny under the Code of Practice’s fairness principles?
If you’re answering no to any of these questions, you need to act now. The risk of tribunal claims is real and growing.
Consult with your workers meaningfully
This isn’t just good practice. It’s becoming mandatory.
Talk to front-of-house staff, kitchen teams, cleaning crews, and everyone in between about what fair distribution looks like. Document these consultations. When you draft or revise your tips policy, demonstrate how worker input shaped the final version.
This consultation creates both evidence of fairness and buy-in from staff, reducing the likelihood of disputes. This should all be done in conjunction with the troncmaster.
Draft or revise your written policy
Your policy must cover:
- How tips are collected
- Who is eligible to receive them
- What objective criteria determine allocation
- When payments will be made
- How records are maintained and accessed
- How disputes will be resolved
The policy should be clear enough that any worker can understand their rights and how the scheme operates. Make it easily accessible. Don’t hide it in an employee handbook nobody reads.
This should be done in conjunction with the troncmaster. At Tips and Troncs, we hold a separate tronc agreement with every employee setting out how their allocation is calculated and what and when is paid.
Implement robust record-keeping immediately
You need to capture:
- Every qualifying tip received, by source (cash, card, service charge) and date
- How the allocation formula was applied
- What each worker received and when
- Store these records securely for three years
Many businesses struggle with this because they’re trying to manage it manually or through systems not designed for the purpose.
Our Troncmaster service solves this problem. We have purpose-built systems that generate compliance-ready documentation automatically.
Review your allocation method for fairness and equality
Apply the Code of Practice principles: objective criteria, consistent application, recognition of all contributors, and freedom from discrimination.
Test your method. If you had to defend it in a tribunal, what evidence could you provide that it’s fair? If workers with protected characteristics seem to systematically receive less, why is that, and can you justify it objectively?
If you can’t comfortably defend your approach, change it now before you face a claim.
Consider professional Troncmaster services
For many businesses, particularly those with multiple sites, complex operations, or simply a desire to focus on hospitality rather than administration, outsourcing to specialists makes strong commercial sense.
The investment in professional services is typically less than the cost of one tribunal claim, let alone the broader costs of non-compliance or additional National Insurance if the scheme isn’t independent of the employer.
You gain independence, expertise, robust systems, documented compliance, and peace of mind.
Prepare for the Employment Rights Act 2025 requirements
Although the mandatory consultation provisions won’t take effect until October 2026, preparing now means you’ll transition smoothly.
Identify whether you’ll consult with trade union representatives, establish elected worker representatives, or consult with workers directly. Build consultation into your review cycles now so it’s embedded in your culture, not bolted on grudgingly when legally required.
Getting ready for a new era in tipping
The hospitality industry has entered a new era where fair and transparent tip distribution isn’t just good practice, it’s the law.
The Employment (Allocation of Tips) Act 2023 has fundamentally changed the ground rules, giving workers clear rights and employers clear obligations. The Employment Rights Act 2025 will strengthen this framework further.
A good Troncmaster and a well-designed tronc scheme aren’t luxuries. They’re essential tools for any hospitality business that wants to comply with the law, treat staff fairly, stay ahead of increasing regulatory scrutiny, and save money.
The team at Tips and Troncs, has many years of experience helping hospitality businesses navigate complex payroll challenges. The new tips legislation adds another layer of complexity, but it’s one we understand deeply.
We know that tronc schemes built on solid foundations, with proper independence, genuine fairness, robust transparency, and expert administration, create value that far exceeds their cost.
Because at the end of the day, your staff deserve fair treatment as a legal right, and your business deserves the protection, efficiency, and competitive advantage that come from getting this right.
Ready to ensure your tronc scheme meets the new legal requirements?
Get in touch with the Tips and Troncs team today for a consultation.