Written by Rachel Cooke
Published on May 20, 2022
Offsetting NI increase

In April 2022 the new Health and Social Care Levy, which saw an increase to National Insurance Contributions (NICs), came into effect.

Whilst it is currently being described as a temporary measure to aid the recovery of the country’s Health and Social Care System, this reduction to take home pay will impact many households particularly those who have already been hit heavily by the increased cost of living.

However, for employers within the hospitality industry there could be an opportunity to mitigate the increase to National Insurance contributions via an effective and efficient tronc scheme.

The details of the new Health and Social Care Levy

  • The new Health and Social Care Levy sees a 1.25% increase to employee’s and employer’s NICs
  • So far it has been detailed as a temporary 3 year measure
  • The increase applies to all working employees currently paying NIC
  • From 6th April 2023 the levy will also apply to all employees who are above pension age and still working
  • The rates will also apply to workers caught by IR35 legislation

Using a tronc scheme to offset the NIC increase

By implementing an efficient tronc scheme managed by an independent Troncmaster, employers have the opportunity to top up their employee’s take home pay and offset the increase to NICs.

Tronc comparison diagram

As you can see from the first square in the graphic, using a tronc scheme can create a significant saving to Employer National Insurance costs. If an employee was earning over the Secondary Threshold, for every £100 of tronc paid out to employees, employers were previously paying £13.25, and from April that went up to £15.05 from their own company budget. This is besides the additional 1.25% on all other NIable earnings. Multiply that many times over to match the size of your monthly tronc fund and you can see where the savings start to stack up!

A compliant tronc scheme would mean that all Employer National Insurance costs would be zero on the tronc amounts paid to employees, so not only could an employer mitigate the additional Health and Social Care Levy cost, the whole Employer Cost saving could go back into the company budget to offset some of the additional NI cost on the rest of the payroll.

For some of our clients at Troncmasters, where their tronc fund is upwards of £100,000 per month, the savings have amounted to more than £180,000 over a whole year!

Helping with staff recruitment and retention

Where the hospitality industry has seen many costs increase across staff wages, logistics, fuel and produce, using a tronc scheme has been a lifeline for the business, as they have been able to use the savings to not only balance their budgets against the rising costs, but also buy additional low cost benefits for their employees. This goes a long way to making an employer more attractive in a highly competitive candidate market such as hospitality.

Another way that a compliant tronc scheme can make an employer more competitive when hiring staff is the effect on the total take home pay for employees. Many employees are seeing the rising cost of living impact their lives dramatically, and where those employees might have seen their take home pay go down from April, due to the Health and Social Care Levy, by implementing a tronc scheme you will be able to increase their take home pay without any additional cost to the company.

This is because a tronc scheme allows you to waive not only the additional 1.25% from the Levy, but all Employee’s National Insurance on their tronc earnings. For every £100 in tronc pay, an employee would have been paying £12 in National Insurance, and since April this year that’s increased to £13.25. A tronc scheme will typically have a small amount of allowable fees, such as for Troncmaster administration or credit card processing costs, however even then the employees will be better off by around £10 per £100. For employees who are earning a significant amount of tips, gratuities and service charge, this can all add up!

A tronc scheme is a great staff retention and recruitment strategy, as employees who are happy with their pay are more likely to stay and more likely to recommend their friends and family to work with your business.

Bearing all of this in mind, you can see how a process that may have started with mitigating the Health and Social Care Levy costs, setting up a compliant tronc scheme, could actually have a big positive impact across several budgetary and staffing areas of the business.