Tipping the scale: is it time everyone set up a tronc?

On 1 October, the Tipping Act came fully into force across Great Britain. Otherwise known as the Employment (Allocation of Tips) Act 2023, it created new legal requirements for businesses across hospitality to ensure workers receive tips without deductions.

Designed to ensure fair and transparent distribution of tipping, service charges and gratuities to workers, it also has public support. In an industry where the practices of some businesses regarding tips have caused controversy, the new legislation brings clarity and fairness to the system.

But what does this law mean for businesses and their employees, and is it time for hospitality businesses to consider setting up what is known as a ‘tronc’ system?

What is the new law?

The new legislation enshrines several key protections for employees, ensuring they receive the tips they rightfully earn. A government consultation back in 2016 found nearly 70% of respondents favoured preventing any employer deductions from discretionary payments. The government’s response in 2021 said action was required to ensure a fair distribution of tips, which has ultimately led to the new legislation. Public and MP support for the legislation has meant it has passed fairly smoothly through Parliament.

The key points are:

• Fair distribution of tips – Employers are now required by law to distribute all tips, gratuities and service charges to workers in full. This stops the practice where employers could keep a portion of tips for business purposes, such as covering breakages or admin fees.
• Swift payment – Employers are now obligated to distribute tips no later than the end of the month, following the month they were given. This ensures workers receive their tips in a timely manner, linked to the time they were earned.
• Transparency – Employers must keep detailed records of how tips are distributed. Employees are also entitled to request a breakdown of how they are allocated, reducing the possibility of unfair practices.
• Worker protections – The law prohibits employers from making other deductions from tips, for things such as tax and National Insurance contributions.

What is a tronc system and how will it help businesses comply?

A central part of the tipping discussion is how to effectively manage the distribution of tips, especially in larger businesses such as restaurants, hotels, and pubs. This is where the concept of a tronc system comes into play.

The term tronc comes from the French term ‘tronc des pauvres’, meaning ‘poor box’. It is a special arrangement where an independent person, known as a troncmaster, manages and distributes tips, gratuities, and service charges among a group of employees. While businesses are not legally required to set up a tronc, the introduction of the new legislation has made this system an attractive option for many businesses looking to comply with the new regulations and distribute tips fairly and transparently.

How to set up a tronc system

Setting up a tronc system is relatively straightforward, but it requires careful planning and communication with employees. Here are some essential steps:

1. Appoint a troncmaster: The first step is to designate a troncmaster, who can be a senior staff member or an external person. Importantly, they must be independent from the employer to ensure impartiality.
2. Define the rules: Establish clear rules on how tips will be distributed, which might be based on hours worked, job role, or seniority. In a restaurant, for example, waiters, kitchen staff and bartenders might receive different portions of tips depending on their level of customer interaction.
3. Register the tronc with HMRC: To operate a tronc system, it must be registered with HM Revenue and Customs (HMRC). The troncmaster is responsible for managing the tax implications, including ensuring the correct tax and National Insurance contributions are paid on tips.
4. Communicate with employees: Transparency and good communication are key. Employees should be informed of how the tronc operates, how tips are distributed and who is responsible for managing it. 

Benefits of a tronc system

A fair tip distribution system can be very important in establishments where certain staff members, like kitchen workers, don’t directly interact with customers but contribute to the overall service experience. Alongside this, by using a registered tronc system, businesses can manage tax obligations efficiently. Tips distributed through a tronc are subject to PAYE (Pay As You Earn) tax but can be structured in a way that ensures compliance with tax rules while benefiting employees.

What this means for UK hospitality

The Employment (Allocation of Tips) Act 2023 represents a seismic shift in how the UK approaches gratuities. A Three Rocks survey of 1,000 hospitality business in June showed 63% were taking tips from employees for various reasons. The new law may help with staff shortages that have been exacerbated by Brexit and Covid. 

However, it may come at a price for employers. Card charges, for example, are applied to the service charge as well as the bill. It may also cost to set up someone as a troncmaster if the role is farmed out to a third party. The new law is also part of a wider Labour strategy to enshrine and expand workers’ rights, that may come with further costs to employers.

But as a service industry, hospitality cannot function without enough good quality staff, and keeping them happy is rightly being prioritised. The new laws promote fairness in the workplace and businesses that embrace these changes will likely see benefits in terms of both employee satisfaction and customer trust.