Tronc and Tips – Everything You Need to Know in 2024!

Tips are a significant employment benefit, particularly in the hospitality sector, as many employees are on minimum wage, and tips serve as a massive motivating factor, resulting in happier guests and improved service overall. However, many employers find it challenging to manage and distribute these tips. There are new updates and legislation coming into place regarding tips and the tronc system, requiring businesses to review their current procedures and ensure fair management of tips within the business.

What is tronc?

The tronc is a system used to pool and distribute tips among staff. The system ensures that all tips are fairly distributed among all staff members, including those who may not directly receive tips. The tronc system also ensures compliance with national insurance requirements.

The new legislation impacts tips received as card and cash payments, and the tronc system should clearly state how tips will be handled within the business.

What is the new legislation about tips?

The new legislation is outlined in the Employment (Allocation of Tips) Bill 2022-23, set to come into force on 1st October 2024. This legislation outlines the following:

• Deductions: 100% of tips and service charge must be allocated to staff members.
• Fair allocation: Tips must be proven to be allocated amongst staff fairly. A new code of Practice will be written by Government and provide practical guidance on how this can be managed. The guidance is likely to include things like having all staff in the same job role on the same weighting for tips.
• Regular wages: It will become unlawful to alter an employee’s regular wage (hourly rate or salary) in return for a share of tips. Moreover, any guaranteed tips’ value cannot count towards meeting National Minimum Wage requirements.
• Agency workers: Agency workers will also be entitled to share of tips similar to employed staff. They will also be subject to the same regulations concerning fair distribution and prompt payment. Employers must transfer the agency worker’s portion of tips to the supplying recruitment agency, which is then obligated to distribute these amounts to their workers within a month of receipt.
• Multi-Venue operations and head offices: Tips collected at a particular venue must be distributed among the staff at that venue exclusively, without spreading across multiple locations. However, head office personnel may receive tips from specific venues if their job roles are directly linked to those venues, such as Area Managers or Sales Executives.
• Documentation and records: Employers and independent Troncmasters will be obliged to publish a clear policy regarding tip allocation. This policy should outline how the employer ensures “fair” distribution. Records of tip allocations must be retained for three years, and employees may request their personal tip statements as well as those for the venue, provided they contain no other employees’ personal data.
• When tips are paid: Tips must be paid in full to employees no later than the end of the next calendar month after they are received.
• Tronc schemes: Tronc arrangements and their tax implications remain the same, as long as the arrangement of allocations and payments is compliant with the new rules (i.e. paid in full, on time and allocated fairly).

The new bill will provide employees with the right to request tipping records and to take employers to a tribunal if they feel that tips are being withheld. This aims to prevent employers from using tips to top up workers’ wages to meet minimum wage requirements.

Furthermore, the legislation will offer further recommendations to businesses on communicating and displaying tip policies. As the new legislation will come into effect on October 1st, 2024, the hospitality sector will be under scrutiny, needing to ensure practices to avoid legal issues and negative publicity.

What kind of scheme would you need?

There are several options that businesses can consider, depending on what works best for them and the right solution. The most common options include:

• In-house tronc scheme: Several businesses choose someone to manage the tronc scheme internally and appoint someone or several people to manage the distribution of tips to staff. The new legislation states that businesses will be responsible for non-compliance, not Troncmasters.
• Third-party tronc scheme: This is when the business hires an external provider to manage the system on its behalf. There are many advantages in terms of time and ensuring that legislation is followed. However, depending on the business size, it can be expensive.
• Hybrid tronc scheme: This is a combination of both an in-house scheme and a third-party scheme. For operators who have a robust rota or payroll system in place that helps them manage and distribute tips, they may just want the expertise of an external Troncmaster to ensure everything is managed fairly and in line with legal obligations and requirements.

No matter which method businesses use, it’s important to ensure the tronc scheme is fair and transparent in how tips are collected and distributed.

What consequences will be faced by those who break the new rules?

Those who break the rules may find themselves facing employment tribunals and prosecution. Under the new regulations, tribunals will have the authority to award workers up to £5,000 in compensation to cover any financial losses incurred due to their employers’ failure to pay them their tips incorrectly or at all.

What can you do to prepare?

• Familiarise yourself with the new legislation and its implications: Employment (Allocation of Tips) Act 2023 on the GOV.UK website.
• Review your policies and procedures if necessary and ensure clarity and transparency regarding the collection, distribution, and reporting of tips.
• Communicate with your team the new changes and provide training where needed.
• Assess your tronc system and ensure compliance with the new regulations and suitability for your business needs.
• Implement a system for maintaining tip records, allowing staff to access this information as required by law.

How can we help?

If you’re a KLG client, reach out for assistance. Considering updating your policies? Contact us to explore how we can support your business. Call 0330 221 0684 or email [email protected].

Ravneet Sekhon 

Trainee Solicitor