If you run a restaurant, bar or hotel, you have probably been told you should have a tronc. Fewer people can explain what one actually is, and a scheme set up carelessly can cost more than having none at all. Here is how the arrangement works, why it saves National Insurance, and what the tipping legislation now requires.
What a tronc is
A tronc is a separate 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 money is shared out. The name comes from the French tronc des pauvres, the collecting box once found in churches.
The defining feature is independence. The employer funds nothing and decides nothing about allocation. That single point is what creates the tax advantage, and losing it is what destroys the advantage.
What counts as a tip
Three things get pooled, and they are treated differently in law:
- Cash tips handed directly to a member of staff;
- Card tips, which pass through the business bank account before reaching anyone;
- Service charges, discretionary or mandatory, added to the bill.
A tip kept entirely by the person who received it is still taxable income for them, but sits outside the pool. Everything that flows through the employer's account is where the rules bite.
How the National Insurance saving works
Money paid out through a properly run scheme is still subject to income tax, collected through PAYE. What changes is National Insurance: payments can be exempt from NIC for both employee and employer, provided the employer plays no part in deciding who receives what.
The saving is substantial. Employer NIC runs at 15% and the employee main rate at 8%, so on a pool of £100,000 a year the combined saving approaches £23,000. For a sector working on thin margins and high staff costs, that is not marginal.
Lose the independence, and the exemption goes with it. If the employer sets the percentages, overrules the troncmaster, or uses allocations to top up wages to the National Minimum Wage, HMRC can treat the payments as ordinary earnings and assess backdated NIC, with interest and penalties on top.
The Employment (Allocation of Tips) Act
The Employment (Allocation of Tips) Act 2023 took effect on 1 October 2024 and changed the obligations for every hospitality employer, whether or not they operate a tronc. Employers must:
- Pass on 100% of qualifying tips to workers, with no deductions other than tax. Card processing fees can no longer be taken out;
- Ensure the distribution of tips is fair and transparent, having regard to the statutory Code of Practice;
- Pay them out by the end of the month following the month in which the tip was received;
- Maintain a written tipping policy, available to all workers;
- Keep records for three years, which workers have a right to request.
Agency workers are included, which caught out a good many operators. Workers can bring a claim at an employment tribunal where an employer fails to comply.
Fair does not mean equal
The legislation requires fairness, not identical shares. A scheme can legitimately weight allocations by role, hours worked, seniority or customer-facing responsibility, so long as the basis is objective, applied consistently and written down. What it cannot do is favour people arbitrarily, exclude agency staff, or quietly route a share back to management.
Deciding how to distribute tips is therefore a policy decision that needs documenting before the first payment, not reconstructing afterwards when someone asks.
Setting one up properly
A workable arrangement needs four things:
- An independent troncmaster, genuinely free to allocate. This can be a member of staff, but not someone who controls pay or reports into the owner on the point;
- A separate PAYE scheme in most cases, so the payments are visibly distinct from wages;
- A written allocation method, agreed in advance and shared with staff;
- Records and payroll software capable of running the second scheme, reporting correctly under RTI and producing the audit trail the Act requires.
Most hospitality payroll packages can handle this, but it does need configuring deliberately. Running allocations through the main payroll as a bonus line is the most common way an otherwise sound arrangement is undermined.
Where schemes go wrong
- The owner decides the split, which forfeits the NIC exemption outright;
- Tips are used to reach minimum wage, which is not permitted, they must sit on top of it;
- Deductions for breakages, walkouts or card fees, all now unlawful;
- No written policy, leaving the employer unable to demonstrate fairness;
- Late payment, missing the end of the following month.
Ensuring compliance is now a two-sided test
Before October 2024 this was mainly a tax question. It is now a tax question and an employment-law one, and they pull in slightly different directions: HMRC cares about independence, while the Act cares about fairness, timing and transparency. Ensuring compliance means satisfying both at once, which is exactly why an arrangement inherited from a previous owner, or set up years ago, is worth re-examining.
Our sector guide to allocating tips and service charges in hospitality goes further into the mechanics, and VAT for restaurants and cafes covers the other tax that catches operators out.
How we can help
We set up and administer these schemes for hospitality businesses: establishing the troncmaster framework, drafting the tipping policy, running the separate payroll and keeping you compliant with HMRC and the Act at the same time. If you have an arrangement you have never had reviewed, or none at all, see our payroll service or book a call.