From 1 October 2024, the Employment (Allocation of Tips) Act 2023 will be introduced to prevent hospitality businesses from keeping tips and service charges from their employees and workers.
These new rules require 100% of the tips generated at a place of work to be passed to employees in a fair and transparent manner. As a minimum, employers must:
- Allocate tips fairly and transparently
- Have a written policy on how tips are allocated to workers
- Distribute 100% of tips to workers by the end of the month following which they were received
If a worker raises a concern that the allocation of tips and gratuities is not fair or feels that they are being discriminated against, whether deliberate or not, they are able to raise a claim with the employment tribunal which, if successful, could result in compensation payable of up to £5,000.
Who is responsible?
As this new legislation falls within employment law legislation, the risk will solely sit with the employer. This risk cannot be discharged to a third party such as a Troncmaster – someone appointed by a business to be responsible for sharing tips to staff via a tronc scheme. A tronc scheme is a pay arrangement which allows hospitality and leisure businesses to fairly share tips and service charges given by customers to staff.
Why appoint a Troncmaster?
If an employer decides how tips are allocated, the payment of them is subject to both PAYE and Class 1 National Insurance Contributions (NICs). When an independent Troncmaster is appointed to decide how any tips and gratuities are distributed and to manage the allocation and payment of those tips, they are not considered earnings for NICs purposes and therefore only attract PAYE. Therefore, appointing a Troncmaster can provide savings of both primary and secondary NICs.
Appointing a Troncmaster does not remove the obligation on the employer to ensure that the method of distribution is fair and reasonable – as required by the Employment (Allocation of Tips) Act 2023. There is a fine line between the employer directing how tips are allocated, which would jeopardise the NICs advantages, and ensuring the method of allocation applied by the Troncmaster is fair and reasonable.
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