Tronc, a cost-effective way for fair tip and service charge distribution in hospitality.

Over the last year there has been much talk about the new legislation on the distribution of ‘tips’. By that I mean debit/credit card tips and service charge. The new law requiring businesses to pass on 100% of tips and service charges to staff finally came into force on 1st October 2024. Now is a the perfect time to put in place a distribution system that complies and is best for your business.

Tronc myths busted

One thing that has surprised me recently is that a number of smaller businesses I have spoken to have not been benefiting from the savings on National Insurance which can be had from operating a ‘Tronc’ Scheme’ – in the official sense of the word.

Tronc Benefit!

If the scheme is set up correctly, there is no Employers or Employee National Insurance payable, which is a substantial saving. This is because the tips are distributed by the Troncmaster and not the Company (though they can be paid through the Company Payroll).

Tronc Myth 1

Basically, in the past some businesses have been put off by the strict rules of a Tronc scheme. Mainly that ‘control’ is passed completely by the Company to an independent Troncmaster, who allocates the tips according to the rules of the scheme.

There is also a need to make sure that offer letters and contracts are worded correctly. But once this is set up then it is plain sailing going forward.

Tronc Myth 2

The costs of an External Troncmaster were also a factor that stopped those I spoke to going down this route. However, when we did a cost benefit exercise, it was a no-brainer!

There are many good Troncmaster providers whose fees are very reasonable, and you get the guarantee that the operation of your scheme is compliant with both current and rules and the legislation changes due in October 2024.

Tronc Myth 3

Those I spoke to believed that it was a requirement to appoint and pay a fee to an external Troncmaster provider. Not the case – You can appoint/elect someone within the organisation as long as they are independent and not ‘influenced’ by the Company on allocations. This person would need training on understanding tip distribution policies and compliance requirements.

If you would like our help to set up your own TRONC scheme or need assistance on making sure your contracts and offer letters are worded correctly please get in touch

Setting up a Tronc Scheme involves several key steps

Choose a Troncmaster

Select a trustworthy third party responsible for overseeing the Tronc scheme and ensuring its effective operation. It’s also valuable to have a person within your organisation who has a clear understanding of tip distribution policies and compliance requirements.

Determine Eligibility

Define which employees are eligible to participate in the Tronc scheme. This typically includes frontline staff who directly interact with customers, such as servers, bartenders, and hosts.

Establish Processes

Develop clear procedures for collecting and distributing tips and service charges. This includes setting guidelines for how tips are pooled, allocated, and distributed among eligible employees.

Devise a Tronc points system. The higher the Tronc point the more tips the employee receives. Tronc points are multiplied by their hours worked, either daily or weekly, to give each employee a Tronc value.

Communication

Transparent communication is essential in implementing a Tronc system. Ensure that all employees understand how the Tronc works, their eligibility for participation, and how tips will be distributed.

Legislative Compliance

Ensure compliance with government legislation, including tax and NIC regulations. It’s crucial to stay updated on legal requirements and adapt the Tronc system accordingly to avoid any potential penalties or liabilities.

By following these steps, your hospitality business can effectively establish a Tronc scheme that promotes fairness, transparency and cost-efficiency in tip distribution.

If you are operating an ‘Inland Revenue Approved’ Tronc Scheme, the wording in your contracts, handbooks and offer letters needs to be compliant for exemption from Employers NI. If in doubt we can review and update for you, please get in touch.