If you work in or run a hospitality business, tronc is one of the most important — and most misunderstood — aspects of staff pay. When operated correctly, a tronc scheme allows tips and service charges to reach staff efficiently while saving the business significant National Insurance costs. When operated incorrectly, it creates HMRC compliance risk and, since October 2024, potential legal liability under new tips legislation.
What is tronc?
Tronc is a formal arrangement for collecting and distributing tips, gratuities, and discretionary service charges to employees. The word "tronc" derives from the French for a collection box. In the UK, it is most commonly used in restaurants, hotels, casinos, and other hospitality venues where customers regularly leave tips or where service charges are added to bills.
A tronc is operated by a troncmaster — typically a senior member of staff, a third-party administrator, or occasionally a trade union representative. The troncmaster is responsible for collecting the tronc pool, deciding how to distribute it fairly among eligible staff, and operating PAYE on the payments.
Why does tronc exist? The National Insurance saving
The primary financial reason for operating a formal tronc scheme is the employer National Insurance exemption. When tips and service charges are distributed through a properly structured tronc — operated independently by a troncmaster, not directed by the employer — those payments are exempt from employer National Insurance contributions (currently 13.8%).
For a hospitality business distributing £200,000 in tips and service charges annually, the difference is significant:
| Distribution method | Employer NI cost | Annual saving |
|---|---|---|
| Through payroll (as wages) | £27,600 | — |
| Through tronc scheme | £0 | £27,600 |
Employee National Insurance is also not charged on tronc payments — another saving for staff compared to receiving the same amount as wages.
Does tronc avoid income tax?
No. This is a common misconception. Tronc payments are subject to income tax at the recipient's marginal rate, collected via PAYE. The troncmaster must register the scheme with HMRC and operate PAYE on all distributions. Staff receive their tronc payments net of income tax, just as they would regular wages.
Any scheme that claims to avoid income tax on tips is non-compliant and will attract HMRC scrutiny. The legitimate benefit of tronc is the NI saving — not income tax avoidance.
How tronc distributions are calculated
The troncmaster has discretion over how the tronc pool is divided, but the most common methods are:
- By hours worked — each staff member receives a share proportional to the hours they worked during the distribution period. Simple, transparent, and easy to audit.
- By points — different roles are assigned different point values per hour (for example, front-of-house staff may receive more points than back-of-house). This reflects the fact that some roles interact more directly with customers who tip.
- Equal split — the pool is divided equally among all eligible staff. Less common but used in some smaller venues.
The distribution method must be documented in the tronc rules and communicated to all eligible staff. Changes to the methodology must be agreed in advance.
What changed under the Employment (Allocation of Tips) Act 2024
The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024 and significantly strengthened workers' rights around tips. Key changes include:
- Employers must pass 100% of tips, gratuities, and service charges to workers — no deductions for administration, processing, or any other purpose
- Businesses must have a written tips policy and make it available to all staff
- Workers have the right to request a written record of how tips have been allocated
- Employers must keep records of tip allocation for at least three years
- Workers can raise claims to an Employment Tribunal if their employer fails to comply
HMRC requirements for tronc schemes
To operate a compliant tronc scheme, the troncmaster must:
- Register the tronc scheme with HMRC (the troncmaster registers separately from the employer)
- Operate PAYE on all tronc distributions — deducting income tax at the appropriate rate
- Submit Real Time Information (RTI) PAYE reports to HMRC on or before each payment
- Keep records of distributions, hours worked, and PAYE deductions
The key requirement for the NI exemption is that the troncmaster must act independently of the employer. If the employer effectively controls how tips are distributed — directing who receives what — HMRC may treat the payments as employer-directed and charge employer NI accordingly.
Calculate your tronc distributions
Use the free GovernStack Tronc Calculator to calculate individual staff shares based on hours worked, apply the correct PAYE income tax for each team member, and see the net payment each person receives. The calculator also shows the employer NI saving compared to paying the same amounts through payroll.