New law for tips 2024: Employment (allocation of tips) Act
The Employment (Allocation of Tips) Act attained Royal Assent on May 2, 2023.
This Act creates a new law for tips and is poised to revolutionize tipping procedures by ensuring equitable distribution of all tips, gratuities, and service charges (“tips”) a
mong staff, free from any deductions. The primary provisions of this Act are anticipated to be enforced in the year 2024 and the new law for tips is expected to come into effect around May 2024.
The Employment (Allocation of Tips) Act includes:
- A requirement for employers to pass on 100% of tips to staff with no deductions, other than those required by tax law.
- A statutory Code of Practice on Tipping setting out the principles of fairness and transparency that employers must have regard to. Where a tronc system is in place, this will be viewed as compliant with the Bill provided it is being run as the Bill intends.
- Requirements for employers to have a written policy on tips, (included in our restaurant employee handbook), to distribute tips in a way that is fair, transparent and consistent and to keep a record of how tips have been dealt with for three years from the date received.
- A right for workers to request information relating to their employer’s tipping record over a specified period during which they had worked for the employer, within the last three years. Employers will have flexibility on how to design and communicate a tipping record, but will need to respond to a request for information within four weeks.
- A requirement for tips that are distributed via a tronc to be paid no later than the end of the month following the month in which they were paid by the customer.
- A right for agency workers to benefit from the Act in the same way as workers.
Background to Employment (Allocation of Tips) Act
This new legal framework is anticipated to impact approximately 2 million workers in the UK’s hospitality sector, specifically those in pubs, cafes, and restaurants. This demographic often receives the minimum wage, with tips constituting a significant portion of their overall income.
In the case of cash tips handed directly to an employee, these usually become the rightful property of the individual, though employers can still exert some influence over cash tips as outlined in employment terms. Conversely, payments made via card transactions are directed straight to the employer, legally becoming the property of the employer.
The primary objective of the Act is to proscribe the prevailing practice, observed in certain establishments, of withholding all or a portion of tips processed through card payments, instead of transferring them in their entirety to the staff.
What is the tronc system?
The UK restaurant tronc system is a method for distributing tips and service charges among restaurant staff. “Tronc” is derived from the French word “tronc des pauvres,” which means “poor box.” This system allows the fair distribution of gratuities to employees while ensuring that tax and National Insurance (NI) contributions are handled correctly. Here’s how it works:
- Collection of Tips: Customers leave tips or service charges either in cash or through card payments. These funds are collected and managed by the restaurant.
- Creation of the Tronc: The restaurant sets up a tronc, which is essentially a separate entity or fund dedicated to handling tips. This tronc is typically managed by a designated troncmaster.
- Troncmaster Role: The troncmaster is responsible for overseeing the tronc, ensuring that tips are distributed fairly, and handling the tax and NI contributions. The troncmaster can be a member of the restaurant’s staff or an external professional.
- Allocation of Tips: The troncmaster calculates how tips should be distributed among eligible staff members. In many cases, this distribution is based on factors like hours worked, positions held, and customer feedback. If you need help implementing and calculating this, why try out our Excel Calculator for Tronc/Tip Pool Payment Distribution to UK Restaurant Staff.
- Tax and NI Contributions: The tronc system helps ensure that tax and NI contributions are correctly managed. Tips distributed through the tronc are subject to income tax and National Insurance, just like regular earnings. The troncmaster is responsible for deducting these taxes and contributions before distributing the tips.
- Fair Distribution: The tronc system is designed to promote fairness in the distribution of tips. It helps prevent issues like tips being withheld by the restaurant or management. The goal is to ensure that staff receive the gratuities they deserve.
- Transparency: The tronc system should be transparent, with records kept to document the allocation and distribution of tips. This transparency helps prevent disputes and ensures that tax and NI obligations are met.
- Flexibility: Restaurants have some flexibility in how they set up and manage their tronc systems, provided they follow tax and NI rules. This allows them to tailor the system to the specific needs and practices of their establishment.
It’s important to note that the tronc system can be complex, and adherence to tax regulations is crucial. Many restaurants seek the advice of financial or legal professionals to ensure compliance with tax and NI requirements and to establish fair and transparent tip distribution practices. Additionally, the tronc system may change over time due to evolving legislation or industry practices, so it’s essential for restaurants to stay informed and up to date.
Our Excel Calculator for Tronc/Tip Pool Payment Distribution to UK Restaurant Staff. is designed to help you implement your Tronc fairly and efficiently.
