What is the Allocation of Tips Act and how will it affect your business?
So hold on tight from your tips to your trunk because you’re about to learn everything you need to know about the new law, the tronc system, and how you can stay compliant.
What is a tronc?
The word “tronc” originated in France just over a century ago. Previously meaning a collection tin, “tronc” now represents a way of pooling the tips gained when diners and hotel guests show their appreciation for the excellent service they receive.
While some hospitality businesses manage tips independently as a method of encouraging front-of-house teams to up their game to earn a little extra, a tronc is specifically the pool tips are put into before they’re split among the entire team. If you want a visual image, think of a tronc as the glass jar you sometimes see at the end of bar or atop a piano (in the posher places!).
When do you need a tronc system?
If you decide to pool your tips, you’ll be using a tronc or a tip collection box (though with so many tips going through card machines these days, the box may literally be a spreadsheet cell or a section of your reports). Legally, you do not have to have a tronc as you can manage employee tips on an individual basis. But, if you choose to use one, you have several options for managing your tronc:
In-house tronc
If you’re confident you can manage tips yourself, you may run your own tronc scheme. If so, we recommend reading the new legislation (discussed later in this article) and making sure you have everything in order, as you’ll be liable in the event of non-compliance, and the potential fine you could face could be as high as £5,000 per employee.
Third-party troncmasters
Troncmasters are parties or programmes to help businesses like yours handle their tips, gratuity, and service charges. If you outsource this (which will cost you a small fee), you are no longer liable for any issues, which will take the stress off your shoulders. This includes factors like financial reporting that needs to go to HM Revenue and Customs.
There are also hybrid tronc models available, mostly for larger businesses with payroll systems in place but a lot of tips to work through.
What does the new legislation change?
The UK Employment (Allocation of Tips) Act 2022-23 (tap on the link to read the legislature directly) makes some key changes to how businesses need to manage tips, protecting them for the teams that earn them, and making their management more transparent and egalitarian.
In short, here are the key changes made by the act:
- Time limit on their distribution. Tips and service charges gathered into a tronc can be distributed no later than the end of the month after the date they were collected. For example, if a member of your team earns a tip on the 20th October 2024, that tip must be paid out by the end of November.
- No deductions permitted. The new legislation makes it clear that gratuity and service charges cannot be used to contribute toward staff wages, nor can money be taken from the tronc for any reason (other than taxation).
- Employee access to tronc data. From the 1st October 2024, when the act comes into effect, all employees will be entitled to access tipping data by request and to a tribunal should they suspect or find evidence that tips are being incorrectly distributed.
- Agency tip protection. Where businesses employee agency workers who earn tips, relevant tips are payable to the agency itself who must handle the tips in accordance with the act, ensuring the agency worker gets paid.
- Formalising tipping policy. From the 1st October 2024, all hospitality and leisure businesses will be required to have a tipping policy in their code of practice, meaning staff and customers will be able to confirm how tips will be handled by the company.
What doesn’t the legislation cover?
Those reading the Allocation of Tips Act closely will have noticed one key omission in the document: the act stresses that tips are to be handled “fairly” by the employer, but does not define what fairly actually means. You might therefore be wondering:
- Do employees keep their own earned tips?
- Do I have to distribute the tips to all my staff, including ones that don’t have customer-facing roles?
- Do my managers now receive a portion of the tips?
- Are tips allocated according to hours worked or simply split into equal portions for each staff member?
The answer is simple: you still decide all of that.
If you want to keep your tipping policy casual, and as an incentive to improve service, you can let staff keep their own tips. Alternatively, you can pool tips in a tronc and split them evenly (some businesses find this is good for team cohesion), or by different percentages based on hours or position. What’s important is that when you decide, you write this into your policy so that everyone has access. No more improvisation or informal tip policies. Tips are going transparent!
To tronc or not to tronc? Pros and cons of troncing
If you’re still not sure whether or not to go with a tronc tip model, here are a few benefits and drawbacks to consider when you make your decision:
- ✅Simplicity for employer and employee. If all tips go into one tronc, this removes some of the competitiveness and stress of staff having varying results when it comes to tips. It also means staff will not fight over customers (and avoid non-public tasks where they cannot make tips, such as working in the stock room).
- ✅Potential tax cuts. Troncs can actually be more lucrative overall than independent tip systems due to National Insurance taxation. They can also be more transparent (and therefore more compliant), though if you’re handling it yourself, it could mean a little extra work.
- ❌Customer service impact. It’s possible that, for the more individualistic staff members, not directly pocketing tips could disincentivise staff from provided that next-level customer service that people love. This could vary from team to team and each businesses has to make that call!
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