Update from Azets: Upcoming changes to the allocation of tips for hospitality businesses

What hospitality businesses need consider ahead of introduction

The new tips legislation will come into effect on 1 July 2024, so employers are advised to have considered the code and whether their current distribution of tips meet the requirements of the new legislation. Employers whose employees receive tips via a Tronc Scheme (see below) should ensure the scheme also meets the new legislative requirements.

The draft code requires employers to:

1. Pass on all tips and service charges to workers without deductions - except in very limited scenarios, such as deduction of income tax.
2. Ensure that tips are distributed in a fair and transparent manner when the employer takes control or exerts significant influence of their distribution.
3. Have regard for this code of practice when they are distributing or influencing the distribution of tips. The code dictates that there needs to be transparency and fairness.
4. Maintain a written policy on how tips are dealt with at their place of business and ensure this policy is made available to all their workers.
5. Maintain a record of all tips paid at their place of business, and their allocation and distribution between each worker - to which workers have the right to request access.

What is a Tronc Scheme?

Tronc Schemes are a mechanism used for the distribution of discretionary tips, gratuities and service charges. A Tronc scheme should be operated by a ‘Tronc Master’ who may be an individual within the business, or a third party or organisation who should act independent of the business/employer in determining how the pool of tips is to be distributed amongst staff.

We are increasingly seeing the hospitality sector engage with third parties to act as Tronc Master and operate an independent scheme on behalf of employers. Businesses who engage with a third party should ensure the third party is aware of the new legislation and a strategy for implementing the changes required, from 1 July 2024, should be agreed.

The use of a Tronc Scheme is beneficial for employers and employees due to the National Insurance Contribution (NIC) relief that is available. In simplistic terms, PAYE tax is due, however there is a relief from NIC. In comparison, if a Tronc is not used, and tips are being passed to the employees then the payment will only be exempt from NIC if it meets either of the following two conditions:

• It is not paid, directly or indirectly, to the employee by the employer and does not comprise or represent monies previously paid to the employer, for example by customers.
• It is not allocated, directly or indirectly to the employee by the employer.

The code of practice is still in draft and we await any updates that may come out of the consultation, but it’s clear that many of the proposed requirements will remain. We recommend that all employers, whose employees receive tips and gratuities should ensure they are prepared for the changes once confirmed.

We are here to help

If you would like to know more about the changes and how they may impact your business, or discuss Tronc Schemes, please get in touch. lyn.newbury@azets.co.uk

https://www.azets.co.uk/