Employment (Allocation of Tips) Act 2023: The impact on hospitality businesses

The Employment (Allocation of Tips) Act 2023 stands out as one of the largest changes to date that the hospitality sector has seen.  

Has your business adapted?

The legislation now requires hospitality businesses to distribute all eligible tips to qualifying workers without deductions.

Employers must also ensure fairness and transparency when distributing these tips.

The legislation seeks to address complaints about employers unfairly retaining or dividing tips. 

Following the change, many businesses have had to reassess and update their procedures. 

To help those who are struggling to adapt to the legislation, we’ve broken down what exactly has changed and how a Tronc Scheme could help.

What exactly did the Employment (Allocation of Tips) Act 2023 change? 

The Employment Act changed a huge amount for hospitality businesses, creating new responsibilities, such as: 

• Giving the entirety of the tip to the employee, aside from mandatory deductions like tax 
• Issuing all eligible tips by the end of the month following the one in which the tip was first received, with service charges, card gratuities and employer-influenced cash tips now defined as eligible tips 
• Granting agency workers similar rights to permanent employees in terms of tip distribution 
• Implementing mechanisms, such as a tronc system, to ensure compliance and fairness 
• Sharing your tipping policy with both staff and agency workers 
• Maintaining records should a tribunal request arise, just as you would with other employment and financial documents 

Within the hospitality industry, this legislation helps address unfair working practices, requiring employers to fairly divide all eligible tips and service charges, enforcing transparent policies and a clear timeline. 

Additionally, the Act prevents employers from using tips to supplement wages above the national minimum without defining them clearly as tips or tronc on the payslip. 

FREE Guide: How to overcome the hospitality sector’s three greatest HR challenges

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What is a Tronc Scheme? 

The Employment (Allocation of Tips) Act 2023 creates a tipping framework and a Tronc Scheme is a popular method of compliance that employers can use to facilitate the new requirements.

A Tronc Scheme refers to a system that gathers and distributes tips to staff which complies with a specific HMRC “special pay arrangement”. 

The process is managed by a designated individual called a Troncmaster, who is responsible for collecting and allocating the tips fairly.

Under this scheme, tips are pooled together and divided based on factors like roles, hours worked, or other criteria agreed upon by the Troncmasters, often with employee input.

As well as compliance with the new legislation, an effectively set up Tronc Scheme can also provide the following benefits: 

• Avoiding unnecessary costs by eliminating Employer's National Insurance and Employee's National Insurance on qualifying tips 
• Creating a fair and transparent system for distributing pooled tips 
• Ensuring adherence to HMRC regulations 
• Achieve greater staff engagement and morale 

More Content: Can a Tronc Scheme help you manage increased Employer National Insurance Contributions (NICs)?

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Can we use an internal Troncmaster?

When looking at a Tronc Scheme, it may be tempting to give the responsibility of Troncmaster to someone in-house.

However, a Troncmaster can’t be a business owner, director or an individual with the ability to hire, eliminating most General Managers, Restaurant/Bar Managers and HR personnel. 

Should you find someone in your business who could operate as a Troncmaster, the next questions which need answering are:

• Do they have the availability? 
• Do they possess the required knowledge? 
• Are they willing to shoulder the responsibility? 

Do I need an independent PAYE scheme?

While there's an option to run an individual PAYE system for your Tronc, we recommend you integrate it with your existing scheme. 

A second PAYE scheme can result in staff being viewed as possessing ‘additional employment’, and as such, they will be taxed a basic rate for this separate Tronc payroll. 

Some staff could also receive split tax codes as HMRC can’t distinguish between "additional" or Tronc earnings. 

A split tax code makes payroll especially challenging given the variable nature of Tronc, often resulting in over or underpayment of tax and an added and confusing administrative burden for employees. 

Working with an expert  

How have you found adapting to the new legislation? Many of those in hospitality have had to re-evaluate their tipping protocols.  

If you need help ensuring compliance with minimal hassle, we can help.

Our award-winning Tronc offering is on hand to take on the responsibility –  feel free to reach out to us here to book a no-obligation call with one of our Tronc experts. 

The top three HR challenges impacting hospitality

The Employment (Allocation of Tips) Act 2023 isn’t the only challenge impacting those in hospitality.

Our recent guide covers the top three HR challenges impacting businesses, offering tangible advice and tips.

Download the FREE guide here, and discover practical solutions and insights to help you tackle these HR challenges head-on.