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

Announced during Labour’s Autumn Budget were a wide array of changes, aiming to help tackle the last Government’s £22bn “black hole” in public finances.

Many of these changes, such as a National Minimum Wage (NMW) and employment allowance increases, require action from businesses.

However, few are predicted to have as much of an impact on businesses as the increase in Employer National Insurance Contributions (NICs).

Those in the hospitality sector have already faced quite a lot of change with the introduction of the Employment (Allocation of Tips) Act 2023, and it may feel like more is being stacked on them; however, with some clever planning and preparation, those in hospitality can make some quick-wins.

What is the Employer National Insurance Contributions increase?

Employer National Insurance Contributions will increase from 13.8% to 15% on a worker’s earnings above £175.

The threshold at which businesses start paying National Insurance (NI) on workers’ earnings is also lowering from £9,100 per year to £5,000.

During the Budget, the Chancellor stated that this change should generate £25bn a year for the Government.

Business Reporter Dearbail Jordan commented on the changes, saying: “Businesses will have a lot to say about this. As widely expected, the Chancellor has lifted Employers’ National Insurance Contributions, but the drop in the threshold at which businesses start paying it is pretty startling.”

How a Tronc Scheme can help

With the Employment (Allocation of Tips) Act 2023 now in place, businesses must distribute all qualifying tips to staff without deductions while also ensuring fairness and transparency.

This change has prompted businesses to reassess and update their procedures, with many now opting for a Tronc Scheme.

Derived from the French phrase “tronc des pauvres” which translates to collection box, a Tronc Scheme describes a system that gathers and distributes tips to staff.

Those in charge of the Tronc are known as Tronc Masters.

Now, here’s where it gets good.

Working with a third-party Tronc Master, keeping the division or disbursement of the Tronc separate from the employer, removes the requirement to pay Employer’s National Insurance and Employee’s National Insurance on qualifying tips.

This benefit can massively help businesses keep up with the new increase in Employer National Insurance Contributions.

Now, while this blog focuses on NICs, it’s worth noting that a third-party Tronc Scheme also removes the requirement to pay pension contributions, student loans or earning attachments on tips.

Understanding the T&C’s

While it may be tempting to keep your Tronc Scheme internal, this isn’t necessarily feasible.

A Tronc Master is not allowed to be a business owner, director or an individual with the ability to hire.

Even if you could find someone internally to manage it, do they have the time, knowledge or willingness to shoulder the responsibility?

However, if you were to run a non-compliant Tronc Scheme, you run the risk of an HMRC inspection which can hold you accountable for non-payment of National Insurance for up to four years in the past.

Smarter decisions, better outcomes

Of course, whenever a major employment change like this arises, pressure is placed on businesses to adapt.

With careful planning and consideration, you can adapt to the changes and simultaneously improve your operations – a win-win.

In regard to Tronc, we firstly advise you to re-evaluate your employment agreements, appoint a Troncmaster and overhaul your tip protocols.

If you’re in need of assistance or would like to discuss our Tronc offering, feel free to reach out to us here to book a no-obligation call with one of our Tronc experts.

As for managing the changes, such as increased Employer National Insurance Contributions, solid payroll processes, backed by reliable cloud payroll software are a must.