The recently enacted Employment (Allocation of Tips) Act 2023 has implemented a common code of practise that all hospitality employers must now follow when it comes to tips, service charges, and gratuities. These changes include a requirement to pass 100% of tips on to employees, mandatory end-to-end transaction reports, and timely payouts to staff.
While navigating these changes and implementations may seem overwhelming, one simple way to bring your business in line with legislation and avoid financial penalties is to implement a Tronc system. A Tronc system is a means of pooling and distributing tips and gratuities among your staff, keeping them completely separated from your business bank account or payroll. This separation means that these tips are not liable to deductions of employer NICs, saving your business 15% on all gratuities.
If your tronc system is ran correctly, it will not only save you money but will also bring your business in line with the new legislation. Here’s how:
No Deductions
Under the Employment Act, no deductions (other than legal tax deductions or similar exemptions) can be made from tips or gratuities. 100% of all tips must be passed on to employees.
With a tronc system in place, tips are separated from the business bank account/payroll, ensuring that they go straight to staff directly.
Fair Distribution
Legislation states that tips must be split fairly among staff. This can consider factors such as seniority, job role, hours worked, or whether the employee is on a full-time or part-time contract.
With a tronc system in place, tips and gratuities are pooled and distributed by a troncmaster. This can be a senior member of staff or a third party such as JustTronc. Tips are distributed by the troncmaster according to the predetermined set of rules (e.g hours worked). This rigid distribution system ensures fairness as tips are split by a rigid policy, and the fact that the employer is not involved in the distribution of tips avoids any bias.
Record and Reports
End-to-end transaction reports for all tips must be kept and maintained for three years under new law. Employees have the right to request access to these reports for previous months.
With a Tronc system such as JustTronc in place, reports are generated for all tips and gratuities. Employees can also access reports for their own tips received for each pay period.
Timely Payouts
Another requirement under legislation states that tips must be paid out to staff by the end of the month following the month in which the tip was left. For example, if a customer leaves a tip in June, that tip must be paid to staff no later than the last day of July.
With a tronc system in place, tips can be paid out at set intervals- often weekly or biweekly. They are not bound to the business’s regular payout schedule, avoiding any late tip payments.
Overall, a Tronc system is an effective way to bring your business in line with the Employment Act. The seamless integration and implementation of systems such as JustTronc means you do not need to worry about different solutions for different elements of the legislation- tronc will cover all of your bases for you.
