A tronc is a pay arrangement used in UK hospitality to pool tips, gratuities and service charges and share them out among staff. The funds are kept separate from regular wages and are handled by an independent troncmaster, who decides how the money is allocated, operates PAYE on the payments and keeps the records. Run properly, a tronc is exempt from National Insurance, although income tax still applies.
The Employment (Allocation of Tips) Act 2023 changed the rules for everyone running a tronc in England, Scotland and Wales when it came into force on 1 October 2024, and many operators are still catching up. This guide covers what a tronc is, how it works, the legal duties since the 2024 changes, and the mistakes that quietly cost operators their NI exemption.
Why the tronc should sit with an independent payer
There is a second, growing reason to keep tronc money at arm’s length from the business, and it comes from holiday pay. In Palanki v The Big Table Group Ltd, an Employment Tribunal held that tips distributed through a tronc run in-house, with the service charge paid into the employer’s own bank account and distributed to staff alongside their wages were “payable by the employer” under section 224 of the Employment Rights Act 1996, and therefore had to be included in the worker’s holiday pay. The tribunal’s reasoning was that where the employer owns and controls the tronc money, that money forms part of normal remuneration and cannot be stripped out of the holiday pay calculation.
Palanki is a first-instance decision, so it does not bind other tribunals, and The Big Table Group has appealed it to the Employment Appeal Tribunal. But the direction of travel is clear: the more the tronc looks like the employer’s own money, the harder it is to keep it out of holiday pay, and the larger the potential back-pay exposure. The practical protection is to have the tronc paid by a genuinely independent operator with its own PAYE scheme, so the tips are not “payable by the employer” in the first place. That is how JustTip is structured. JustTip acts as the HMRC-registered troncmaster and pays staff through its own PAYE scheme, keeping the tronc legally distinct from the employer’s payroll for both tax and holiday-pay purposes.
How a tronc works in practice
A working tronc has four moving parts.
The pool: tips, gratuities and service charges flow into a shared fund, often made up of both cash and card tips.
The troncmaster: an appointed person or external party runs the pool. They set the allocation rules, apply them every payout period, and operate PAYE to deduct income tax on the payments.
How PAYE is handled: income tax is always due on tips. Where the troncmaster pays staff directly, HMRC opens a separate tronc PAYE scheme in the troncmaster’s name, run separately from the employer’s main scheme. This is not a universal legal requirement for every tronc, but it is how JustTip operates, and, as the Palanki case shows, using an independent scheme also helps keep tronc money out of holiday pay.
The payment to staff: workers receive their tronc share as a payment separate from their hourly wages.
The point of the structure is that the person deciding who gets what is independent of the employer. That independence is what protects the National Insurance exemption.
The role of the troncmaster
The troncmaster is the heart of any compliant tronc. HMRC’s test is about independence: the person or party allocating the money must be independent of the employer. If that independence breaks, the NI exemption breaks with it.
Who can be a troncmaster: a staff member with no hiring or firing authority, or an external third party. Putting the business owner, a director, or a manager with hiring or disciplinary authority in the role will normally defeat that independence and lose the exemption, so it should be avoided.
What the troncmaster does: sets the allocation criteria; applies them each payout period; operates the tronc PAYE scheme and submits real-time information to HMRC where they are the payer; keeps records of what came in and went out; and communicates the policy and handles disputes. Once money is in the pool, the employer should have no say over who gets what.
Tronc and tax
Why tronc is exempt from National Insurance
The NI exemption sits in the Social Security (Contributions) Regulations 2001, Schedule 3, Part 10. There are two conditions, and meeting either one secures the exemption: the tips are not paid to the employee by the employer, directly or indirectly; or the tips are not allocated to the employee by the employer, directly or indirectly. In practice most troncs rely on the second condition, because an independent troncmaster, not the employer, decides who gets what.
This is why the mechanics of payment do not decide the NI question. Even if tips are paid out through the employer’s payroll, they remain exempt from NI as long as an independent troncmaster, not the employer, decides the allocation. What breaks the exemption is the employer deciding who gets what, whether directly or by controlling the tronc behind the scenes.
Income tax still applies
There is no tronc exemption from income tax; all tips are earnings. The troncmaster operates PAYE and deducts income tax before staff receive their share. HMRC’s main practitioner reference is the E24 booklet, “Tips, gratuities, service charges and troncs”, on GOV.UK.
What changed on 1 October 2024
The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024, alongside its statutory Code of Practice on Fair and Transparent Distribution of Tips. The Act applies in England, Scotland and Wales; Northern Ireland is excluded. The core duties are:
- 100% of tips to workers: employers cannot retain any portion of qualifying tips, gratuities or service charges.
- Fair and transparent allocation: tips must be allocated fairly on the Code’s factors, including role, hours worked, individual or team performance, seniority, length of service and customer intention.
- Written tipping policy: any business receiving qualifying tips must have a written policy and make it available to all workers.
- Record-keeping: employers must keep records of how qualifying tips were distributed for three years, and workers can request information about how the policy applies to them.
- No deductions: tips cannot be reduced by card-processing fees, breakages or administrative charges. The only permitted deductions are statutory ones, such as income tax.
Enforcement is through the employment tribunal, and tribunals must take the Code into account when assessing fairness. Compensation is capped per worker and uprated each April; the cap is £5,366 from 6 April 2026.
Common tronc mistakes
- The owner or a manager is really the one allocating: HMRC treats this as employer allocation, and the NI exemption is lost.
- No written tipping policy: a breach of the Act for any business receiving tips.
- Running tronc money as the employer’s own money: as Palanki shows, this risks the tronc being pulled into holiday pay. Keeping the tronc with an independent payer and its own PAYE scheme is the cleaner position.
- Deductions from the pool: card-processing fees, breakages and admin charges have been banned under the Act since October 2024.
- Records that don’t add up: spreadsheet audit trails are routinely incomplete, overwritten or late, and will not stand up if HMRC or a tribunal asks for three years of distribution data.
Frequently asked questions
Can the business owner be the troncmaster? Best avoided. An owner, director or manager with authority over staff will normally break the independence the exemption depends on, and lose it.
Are tronc payments taxable? Yes for income tax. They are exempt from National Insurance only where the tronc is set up and run with genuinely independent allocation.
Does a tronc need its own PAYE scheme registered with HMRC? Not as a universal legal requirement. Where the troncmaster pays staff directly, the employer notifies HMRC and a separate tronc PAYE scheme is opened in the troncmaster’s name. Beyond the tax mechanics, an independent scheme is also the safest way to keep tronc money out of holiday pay following Palanki. This is how JustTip operates.
How are tips allocated in a tronc? By the troncmaster, on the Code’s fair factors, written down and applied consistently.
Can the employer deduct card-processing fees from the tip pool? No. Since 1 October 2024, deductions from qualifying tips have been prohibited under the Employment (Allocation of Tips) Act 2023.
Next steps
JustTip helps UK hospitality operators run compliant troncs without the spreadsheet pain. As the UK’s HMRC-registered independent troncmaster, JustTip sets and applies the allocation rules, builds the audit trail automatically, runs the tronc PAYE scheme, and keeps the tronc distinct from your payroll for both National Insurance and holiday-pay purposes. Book a demo to see it in action.
