Changes are coming to the hospitality sector, with new legislation shaping how businesses allocate tips. The Employment (Allocation of Tips) Act 2023, also known as TRONC legislation, is set to come into force in July 2024, marking a significant shift in the dynamics of tip distribution. We explore what this means and how you can prepare.
Tip allocation
Historically, service charge payments were made at the discretion of the business, and there was no legal obligation to pass these on to staff. Cash tips, however, were considered the sole property of individual employees. Recent concerns about unfair tip distribution have prompted the introduction of the Employment (Allocation of Tips) Act 2023.
What does the new legislation mean?
The new legislation ensures that 100% of the service charges are distributed fairly, transparently and consistently among staff. This includes all agency workers too, which adds another layer of complexity for employers.
It also means that tips and service charges can’t be shared beyond an individual establishment (for example, in multiple chain outlets the charges could not be shared). So each location will be required to distribute 100% of the tips fairly among its staff. It’s important to note that owners cannot offset the cost of operating a tronc from the tronc itself.
Deadlines and requirements for businesses
- The new legislation comes into force in May 2024.
- To comply with this new legislation, businesses are required to publish their tips and service charge policies prominently for both staff and customers.
- A personal account of the share of the tips to each member of staff must also be provided. There are strict deadlines for this and penalties for failing to do so.
- A statutory code of practice is expected but this has yet to be published.
HMRC requirements
Traditionally compliance has been challenging, as currently an independent tronc (separate from the employer) only needs to account for tax and not National Insurance. If the employer influences the tronc’s distribution, then NI does become deductible.
How to prepare
- Ensure your payroll is ready.
- Written policy to set out how tips are dealt with.
- Record of allocation of the tips (this must be kept for three years).
Other considerations
- Transparency: Under the new legislation, employees can request information from their employers on tipping records. If employers refuse, employees now have a 12 month window to lodge a claim in an Employment Tribunal. There is a potential compensation of up to £5,000 available. Therefore, it’s essential to exercise transparency from the outset about tips.
- Additional costs for employers: all administrative costs must be absorbed by the employer (imposed by the bank or tronc operator).
- Tronc systems can still be used, but administrative costs must be covered by the employer (and not taken from the tips or charges).
- Use an external tronc masters support for fair and transparent management and delivery of tronc.