If you run a restaurant, bar or hotel, you have probably heard the word tronc. A well-run tronc scheme keeps your tips fair, compliant, and free of National Insurance. Here is what a tronc is, how tronc payments work, and how the latest tipping law affects you.
What is a tronc?
A tronc is a special pay arrangement for sharing tips, gratuities and service charges among staff. It is run by a troncmaster — a person independent of the employer who decides how the pooled tips are allocated. The word comes from the French "tronc des pauvres" (collecting box).
How tronc payments save National Insurance
Tips paid out through a properly run tronc are still subject to income tax (collected through PAYE), but they can be exempt from National Insurance contributions — for both the employee and the employer — provided the employer does not decide who gets what. That NIC saving (15% employer and up to 8% employee on the relevant amounts) is the main reason hospitality businesses use a tronc.
The key condition is independence: if the employer controls the allocation, the NIC exemption is lost.
The Employment (Allocation of Tips) Act
The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024 and changed the landscape. It requires employers to:
- Pass on 100% of qualifying tips to workers without deductions (other than tax);
- Allocate tips fairly and transparently;
- Have a written tipping policy; and
- Keep records of tips and allocations that workers can request.
A compliant tronc scheme is the cleanest way to meet these duties while preserving the NIC advantage.
Setting up a tronc correctly
To work, a tronc needs its own PAYE scheme (in many cases), an independent troncmaster, a clear allocation method, and proper records. Done badly, it can trigger backdated NIC, penalties and disputes with staff.
How PushDigits can help
We set up and administer tronc schemes for hospitality businesses — appointing the troncmaster framework, running the tronc payroll, and keeping you compliant with both HMRC and the tipping legislation. See our Payroll service or get in touch.