On April 6th, employer NICs are set to rise from 13.8% to 15%. Announced in last year’s October budget, this increase comes amid a sea of other cost increases for employers, which includes an increase in the minimum wage to £12.21 and the rising costs of energy.
Along with the increase to 15%, the secondary threshold (the rate at which employers begin to pay NICs for an employee) has also been lowered from £9,100 to £5,000 annually. According to UKHospitality, this means that an additional 774,000 hospitality workers will now be eligible for employer NICs, which will incur the hospitality an addition £1bn cost.
While this sounds daunting, it’s not all bad news- the Employment Allowance, which helps employers reduce their NIC liabilities, will rise from £5,000 to £10,500. The eligibility threshold for this relief, which previously stood at £100,000, is also being removed. As well as this, a tronc system is a great way of reducing costs. This solution separates tips and gratuities from business bank accounts, which eliminates the NIC liability on them. Read on to learn more:
The NIC Increase
This NIC increase of 1.2% will no doubt become a burden to a lot of hospitality businesses. Now that the secondary threshold has been lowered to £5,000, employers will be liable for NIC for employees who make as little as £96.15 a week- essentially, any employee who works 8 hours a week or more.
Coupled with the increase in minimum wage to £12.21, April will come as an expensive time for hospitality employers. While this can be combatted with the Employment Allowance and other cut corners, a strong and effective method to reduce NIC liability is a Tronc system. With the Employment (Allocation of Tips) Act now in effect in the UK, more hospitality employers are turning to tronc systems for a solution.
What is Tronc?
A Tronc system is a method of pooling and distributing tips, separately to your business bank account/payroll. Under HMRC regulations, this eliminates the NIC liability associated with running tips and services through payroll. The system is overseen by a troncmaster, usually a third party or senior member of staff, who splits tips impartially according to a predetermined policy. This could factor in hours worked, seniority, or role type.
A key factor in ensuring your tronc system is HMRC compliant and NIC exempt is to make sure that it is ran completely separately from the employer. Any employer involvement will incur NIC liability.
Setting up your tronc system
Implementing your tronc system correctly is key to ensuring compliance and NIC exemptions. If done correctly, it will bring a host of benefits to your business.
1. Appoint a troncmaster
Choosing the right troncmaster is key to making sure your tronc system runs as smoothly as possible. While this is often a senior member of staff, you can also go with a third party tronc provider to sort tips for you. The most important part is that it is someone you/your staff trust, and someone who will run the tronc fairly and impartially, and that is someone willing to take on the responsibility.
2. Talk to your staff
Making sure that your staff are on board with your system is essential to a succesful tronc. Make sure that your employees understand what tronc is, and how yours will be run. They should be informed on the distribution policy that you’ll have in place and should trust your troncmaster to split tips without bias. A good system to have in place is a procedure for addressing disputes over tips and gratuities.
3. Create your tipping policy
The next vital step in setting up your tronc system is to create your tronc policy. This will include details such as how tips are pooled and split, which staff are eligible for tips (e.g front of house, chefs, etc), the role of the troncmaster, and how disputes will be handled. Some factors you can consider for tip splitting are hours worked, seniority, the role an employee has, or whether they are part time or full time.
4. Register your tronc system with the HMRC
While the main benefit of a tronc is NIC exemption on tips and service charges, they are still liable to income tax/PAYE. Make sure that your tronc system is registered with the HMRC to avoid NIC liability, or worse, penalties for non-compliance.
Overall, while the rise in NICs is a daunting change for many employers, there are reliefs available. Taking advantage of the employment allowance and tronc systems can be a good way of cutting vital costs for your business.
