For some, tips and service charges are recognition for hard work and great service. However, the reality is that tips and service charges make up a significant part of employee income. For most operators, these payments are linked to a lot of work and cost for the business with admin and payroll costs amounting to 15% of every £1 that is processed through the business. Unfortunately, in some cases these funds could be managed incorrectly due to ever changing legislation, staff pressures and other factors. This inherently leads to real problems for operators: legal claims, unpredictable costs, and even a breakdown of trust between staff and management.
At JustTip, we make tipping transparent, compliant but also efficient. Why do hours of work when a platform can do it all for you? That’s why we’re encouraging operators to rethink how they process tips and service charges. The recent Palanki v The Big Table Group case has highlighted the risks of running tips and tronc through the same payroll scheme as wages. The smarter, safer approach is to use a separate PAYE scheme and the benefits go well beyond compliance.
Lessons from the Palanki Case
In the Palanki case, a hospitality worker challenged the way his employer handled discretionary service charges. The business collected the charges, pooled them, and distributed them through its tronc system. Since the payments were issued through the same payroll, and shown on the same payslip as his wages, they could be regarded as part of his regular pay.
This decision had serious consequences for the hospitality sector. This case could lead to operators being required to include tips and service charges payments in holiday pay calculations. Even though it was only a first-instance decision, it is not yet law and is subject to appeal, it highlights a direction of travel in employment law: when tips are processed through payroll, they risk being treated as wages in every respect.
For operators, this is more than a technical detail. It’s a potential liability that could extend to back-dated claims and create financial uncertainty across the business.
The Problems with Running Tips Through Payroll
When tips are folded into payroll, they stop being truly independent. That creates several knock-on effects. First, there is the exposure to holiday pay claims, as the Palanki case shows. Second, even when a tronc is described as “non-contractual,” running it through payroll risks making it look contractual in practice. Third, payroll integration blurs the line between wages and gratuities, making reconciliation more complex and creating unnecessary audit risk.
Beyond compliance, there’s also a human element: staff want transparency. If they discover that tronc payments have been excluded from their holiday pay, or if they simply don’t understand how tips are managed, trust is eroded. For an industry built on teamwork, that can be damaging.
The Case for Separation
By contrast, when tips are run through a dedicated PAYE scheme and managed independently by a troncmaster like JustTip with a separate bank account, the distinction becomes clear. Legally, this creates stronger protection against claims. Financially, it gives operators more certainty, keeping unpredictable tip flows out of core labour costs. Administratively, it simplifies reporting and reduces the risk of errors.
Most importantly, it gives staff confidence. They can see that tips are being handled independently and fairly, with clear records of how money is collected and distributed. This kind of transparency is a powerful driver of morale and retention, and it helps employers position themselves as fair and forward-thinking.
Looking Ahead
The law around tipping is evolving, with the UK’s Allocation of Tips Act and tribunal cases like Palanki shaping the landscape. Operators who continue to rely on payroll-based systems are leaving themselves exposed. Those who move to separate schemes are not only protecting themselves today but also future proofing their businesses for tomorrow.
At JustTip, we’ve built our platform to make this transition simple. We handle the process end-to-end, ensuring tips are distributed fairly, transparently, and in line with best practice, all while reducing risk for operators.
If you’re still running tips and tronc through payroll, now is the time to act. The risks are too great, and the benefits of separation are clear. Get in touch with us today to learn how JustTip can help you create a safer, fairer tipping model.
– James Fahy, CEO of JustTip
