What are the benefits of a tronc scheme?
If you are not using a tronc scheme and are distributing tips to your staff via their payroll, you will be attracting both Employers’ National Insurance and Employees’ National Insurance.
At a time of escalating costs for the hospitality sector, can you afford to give 13.8% of the value of pooled tips collected to HMRC when you don’t have to? Just think about this for a moment … if your business is collecting, say, £20,000 per month in tips every month, you could be paying up to £2,760 a month in Employers’ NI, that’s over £33,000 a year. What could your business do with that kind of money?
And your employees are missing out too. Without a tronc scheme, they will have NI deductions from their tips, so for every £100 of tips they receive, they could be deducted 12% of this amount.
A tronc is managed and controlled by a ‘Troncmaster’
Your Troncmaster can be an individual within your business or a third-party Troncmasters service. Whoever you choose must be independent of the company’s decision-making and hiring responsibilities. So this rules out business owners, directors, senior management, HR and possibly other staff such as Team Leaders if they have a part in hiring.
The wrong choice of Troncmaster could make your tronc scheme non-compliant with HMRC, which could result in investigations and the repayment of NI on tips for the employer and employee. Independent research in 2022 highlighted that over 50% of tronc schemes could be non-compliant due to their choice of Troncmaster, so it is a crucial decision to get right.
Your Troncmaster can also be external to the business, such as our Troncmasters service. Having an independent third party act as the Troncmaster ensures absolute independence and has broader experience setting up and administering tronc schemes.
What is included in a tronc scheme?
A tronc scheme can only distribute the proceeds of discretionary tips, gratuities and service charges. This will usually include all tips made on cards and service charges added to the bill as long as the customer is aware they are discretionary and has the option of not tipping.
A tronc also includes cash tips if these tips are pooled rather than kept by the individual.
You can still have direct tipping, where the tip goes directly to the individual, but this can’t be included in a tronc scheme, so it is still subject to tax and NI.
Currently, it is up to the business what proportion of the service charges paid by customers are included in the tronc. The passing of the new Employment (Allocation of Tips) Bill, which will likely come into effect in April 2024, will make it law for tips to be passed on in full to workers without deductions (although there is still some nuance to be iron out if certain costs such as third party fees will be able to be taken from the tronc fund)Ah yes.
A fair distribution of tips
A tronc scheme has distribution rules; how will you apportion the pooled tips amongst your staff?
How your tronc is structured depends on many variables and can be complex and seem to be ever-changing. Your Troncmaster is responsible for deciding what this structure looks like and how it will be implemented.
A tronc scheme can be as simple or complex as you want, from a simple even share scheme to a very complicated scheme based on a points system.
Read our blog about how to build a tronc scheme for more ideas on how it can be structured.
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