Many more hospitality businesses are beginning to realise the benefit of using a tronc scheme to process pooled tips. As explained on our blog ‘How a tronc scheme reduces costs’, a compliant tronc scheme will provide National Insurance savings for both the employer and employee. These savings can stack up for the company (13.8%) and help keep more money in employees’ pockets (an extra £9.60 for every £100 of pooled tips they receive).
What is a Troncmaster?
Central to a tronc scheme is the role of the Troncmaster. This is an individual who oversees the tip distribution and compliance with HMRC.
Important criteria for the Troncmaster role
A 2022 survey by IRIS Software, in partnership with Censuswide, highlighted a hidden problem with over half of the businesses running a tronc scheme. This problem came from their choice of Troncmaster.
Traditionally, the distribution of pooled cash tips was often handled by the business owner, manager or supervisor. It is not surprising, therefore, that many institutions choose these individuals to take on the role of Troncmaster when they set up a tronc scheme.
And this is where the problem lies.
To qualify for the National Insurance savings, a payment to an employee must be made “outside of employment”. This means a tronc scheme has to be an impartially managed allocation scheme; because of this, the Troncmaster must be someone who does not have leadership or hiring responsibilities, or they could be seen as an extension of the employer, and therefore puts the tronc payment “inside employment”
The survey showed that of the companies using a tronc scheme, 30% had a Director or Business Owner as the Trocmasters, with a further 38% using a Manager. The likelihood is that these roles would be involved in the hiring process, making them ineligible to be a Troncmaster and the tronc scheme itself non-compliant.
The risks of non-compliance
As with other tax-saving schemes, there are consequences for non-compliance. For example, an HMRC investigation could decide that the tronc scheme was not adequately allocated outside of employment. Therefore, the company and employees would be liable for National Insurance payments on the tips. This could be back-dated by four years!
The Troncmaster solution
If most senior staff are non-eligible to be the Troncmaster, this puts tremendous pressure on the business to find an individual to take on this role.
There are many things you need to consider;
- Do they have the correct skill set?
- Are they willing?
- Do they understand the responsibilities involved?
- Can they act impartially and deal with employee queries and possible grievances?
- Are they up to the administrative tasks required?
- What happens if they leave the business?
An alternative to having a Troncmaster from within the business is to choose a third-party, independent Troncmaster;
- No issue about impartiality as they are outside your business
- It takes away the stress and hassle of additional responsibilities in an employee
- Will have greater experience in running tronc schemes
- Best practice processes
- Bespoke systems and technology
If you are worried that your choice of Troncmaster may make your scheme non-compliant, we are happy to discuss it with you. So contact us for an informal chat.