Great Britain
The tipping duties in this post sit in Part 2B of the Employment Rights Act 1996, which extends to England, Wales and Scotland but not to Northern Ireland — if your venue is there, check the position locally. The tax and National Insurance treatment is set by UK-wide legislation and applies throughout.
A tronc is an arrangement for sharing tips, gratuities and service charges among staff, run by someone other than the employer. The person who runs it is the troncmaster. Done properly, money paid out of a tronc carries no National Insurance — not the venue’s and not the staff member’s — while income tax is still due, collected through a PAYE scheme in the troncmaster’s name rather than the venue’s.
That is the whole of it in tax terms, and it is the reason troncs exist. What has changed since 1 October 2024 is that a second set of rules now governs the same money: who is entitled to what, what you have to write down, and what a member of staff can ask to see. The two systems sit on top of each other and neither one answers the other’s question.
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Tronc and troncmaster, in HMRC's own words
A tronc is a special pay arrangement used to distribute tips, gratuities and service charges. A troncmaster is the person, other than the employer, responsible for arrangements to share tips among employees.
Tronc pay, and whether it is part of salary
Tronc pay is what a member of staff receives out of the tronc: their share of the pooled tips, gratuities and service charges, as the troncmaster divided it. It is not part of their salary. It does not count towards the minimum wage, and the venue should not promise anyone a figure from it — HMRC says a guaranteed amount may show enough control to cost the National Insurance saving. It is still taxable, so income tax comes off it through the troncmaster’s PAYE scheme.
What a tronc is actually worth
Tips left in cash and kept by the person who was handed them never involve the venue at all. Card tips are different, and card tips are now most of them: the money lands in the venue’s bank account, and getting it to staff is a payment by the employer.
Pay it through the payroll and it is earnings. Employer’s National Insurance at 15% goes on top, the staff member pays 8% out of it, and income tax comes off as well. Route the same money through a tronc that qualifies and the National Insurance disappears from both sides.
Two assumptions are doing work there, and both are worth checking against your own figures. The staff member has to be inside the 8% band for the whole £1,000 — above the upper band the marginal rate drops to 2%, and someone under the primary threshold pays nothing either way. And the £150 is the venue’s National Insurance liability, before Employment Allowance. That allowance is £10,500 for 2026 to 2027 and comes off the employer’s Class 1 bill for the year until it runs out, so a venue whose ordinary wages have already used it up feels the £150 as cash, and one still inside it does not — yet.
What does not change is the shape. Income tax is identical on both routes: £200 either way. National Insurance is the whole of the difference, and it is charged twice on the same money when tips go through the payroll.
The rule almost everyone half-remembers
The exemption is in paragraph 5 of Part 10 of Schedule 3 to the Social Security (Contributions) Regulations 2001, and it sets out two conditions. The near-universal mistake is to read them as a pair you have to satisfy together.
It is either condition, not both
HMRC’s own guidance says a payment is exempt from National Insurance contributions if it meets either of two conditions:
One. It is not paid, directly or indirectly, to the employee by the employer, and does not comprise or represent money previously paid to the employer.
Two. It is not allocated, directly or indirectly, to the employee by the employer.
Read as a pair, card tips could never qualify and the tronc would be pointless. Read correctly — as alternatives — the first condition is simply unavailable to card tips, because that money reached the venue first, and everything therefore rests on the second.
So for the tips a modern venue actually handles, one question decides the tax: does the venue play any part in deciding who gets what? Not who runs the till, not whose bank account the money passes through. Who decides the split.
“Indirectly” is doing real work in that sentence. HMRC’s position is that an employer allocates indirectly where it “establishes and controls a system that performs the allocation in such a way that the allocation can reasonably be said to reflect and give effect to the employer’s wishes”. A points system is the classic example, and whose idea it was decides the answer.
Four things break it, and the first one breaks it whatever else you do:
- A mandatory service charge. If a charge is not genuinely discretionary, National Insurance is always due on what is paid out — however the money is shared, and whether or not a tronc is involved.
- A points system the venue designed. HMRC’s own example has the troncmaster carrying out the employer’s wishes, and every payment out of the tronc becomes liable. The same points system, adopted by the staff themselves with no element of compulsion, does not break it.
- Promising anybody a figure. HMRC says guaranteeing that someone will receive a certain amount from the tronc may show enough control to amount to indirect allocation.
- Putting yourself, a business partner or a director in the chair. HMRC treats an employer, a business partner or an official of the company acting as troncmaster as making the payments as if they were the employer, so those payments run through the venue’s own payroll. The National Insurance disregard is not automatically lost with them, but it is squarely at risk: HMRC says choosing someone who influences how the business is run may itself indicate that the employer has indirectly allocated the tips.
Two things that do not break it are worth knowing, because they are commonly assumed to. The employer may appoint the troncmaster — HMRC says so explicitly, and in its own example an appointment made with no involvement in the split leaves the exemption intact. The question is never who signed the appointment; it is whether the venue decided the share-out. And staff may have a contractual right to take part in the tronc, so long as no particular amount is guaranteed.
Income tax does not go anywhere
The National Insurance saving is the only saving. Tips are taxable earnings, and someone has to operate PAYE on them.
Where a troncmaster is in control of the tips, that someone is the troncmaster, through a PAYE scheme in their own name, kept entirely separate from the venue’s. The troncmaster may use the venue’s payroll software to do it — the venue is effectively acting as their agent — but the records stay apart. The venue has to tell HMRC that the arrangement exists, so that HMRC knows who is responsible for PAYE in each period. That notification is a duty, not a courtesy, and it is the step most often missed.
Cash tips are the exception at both ends: handed straight to a member of staff and kept, with the venue not involved, they attract no PAYE and no National Insurance, and it is the individual’s own job to tell HMRC so their tax code can be adjusted. Put the same cash into a pot the venue collects and shares out and none of that holds — that is a payment by the employer like any other.
The second layer: since October 2024, the split is regulated too
The Employment (Allocation of Tips) Act 2023 inserted a new Part 2B into the Employment Rights Act 1996, in force from 1 October 2024. It is worth being clear that it changed nothing about tax — HMRC says so on the face of its guidance — and that a tronc which is perfectly efficient for National Insurance can still breach it.
The core duty is short. The employer must ensure that the total amount of qualifying tips paid at a place of business “is allocated fairly between workers of the employer at that place of business”.
Two words do separate jobs in everything that follows, and the Act keeps them apart. Allocation is deciding who gets what. Payment is getting that amount into somebody’s hands. A tronc can take the first off your plate; it does not make the second disappear.
Four consequences of that duty are easy to miss:
- The total means the total the customer paid. The Act says deductions are disregarded when working out that amount, whoever made them. Card processing fees therefore come out of the venue’s margin, not out of the tips.
- It is per place of business. Tips are allocated between the workers at the venue they were paid at, and the government’s guidance says takings cannot simply be pooled across branches and treated as one workforce. There is one statutory exception, in section 27E: tips attributable to a non-public place of business — somewhere customers and staff do not deal with each other face to face — may be shared with workers at the employer’s public places of business instead.
- There is a deadline. Allocation and payment must both happen no later than the end of the month following the month in which the customer paid.
- Agency staff count. For this purpose the venue where they work is treated as their employer, and leaving them out of the split altogether is the guidance’s own example of what a tribunal is likely to find unlawful.
Where a tronc fits in
Section 27F of the Employment Rights Act 1996 is what lets a tronc discharge the fairness duty. If the venue arranges for the tips to be allocated by an independent tronc operator, and it is fair for the venue to make those arrangements, the venue is treated as having allocated them fairly.
The definition of “independent” is where the two systems lock together. Among the conditions, the payments must be ones the National Insurance disregard applies to by virtue of the second condition — the one about the employer not allocating. In other words, a tronc the venue is quietly steering is not merely a tax problem; it is not an independent tronc for the purposes of the Act either, and the fairness duty lands straight back on the venue.
The statutory code of practice sets out who can hold the role: a member of staff the venue appoints, an external payroll or accountancy firm, or someone the staff elect or agree on. Its warning is one line — “care is needed to maintain independence” — and its glossary is blunt about where responsibility ends up: the employer remains liable for the fairness and transparency of the scheme. If you learn your tronc is allocating unfairly or making deductions, the code expects you to act: raise it, replace the operator, or end the arrangement. Once you know, doing nothing can itself amount to a failure to comply.
What “fair” means, according to the code
There is no formula, and equal shares are not required. What the code requires is a clear and objective set of factors, fair and reasonable for the nature of the business, and it lists seven that employers may consider.
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The code's illustrative factors, paragraph 23
a. Type of role / work for example distribution between front of house and backroom workers · b. Basic pay (and how workers are engaged) · c. Hours worked during period when tips are received · d. Individual and/or team performance · e. Seniority / level of responsibility · f. Length of time served with the employer · g. Customer intention
Three things sit around that list. Discrimination law applies, and the code singles out indirect discrimination as the real risk — a split that quietly disadvantages a group with a protected characteristic. The method should be reviewed as the team changes, because one that was fair two years ago can stop being fair without anybody touching it. And genuine staff agreement counts for something: the code says that if the people affected consider a method fair, that may help a tribunal conclude it is — provided it is genuine and not pushed through by managers.
The code is admissible in evidence and a tribunal must take relevant parts of it into account, though failing to follow it is not by itself unlawful.
The policy and the record
Two written obligations sit alongside the fairness duty, and both bite wherever tips are more than occasional and exceptional — which in a pub or a restaurant means always.
The policy must say whether you require or encourage customers to tip, and how you make sure tips are dealt with lawfully, including how they are allocated. It goes to every worker at that venue, agency staff included, in plain language, and in an accessible format on request. Amend it and the new version has to be circulated too. You may show it to customers, but you do not have to.
The record is the part that shares a spine with the rest of employment law. You must record how every qualifying tip has been dealt with, and keep it for three years.
Three years — from when the customer paid
The clock in section 27J runs from the date the tip was paid, not the date you wrote anything down. Three separate figures have to be in there: what came in at that venue, what you allocated to staff yourself, and what you arranged for a tronc operator to allocate.
A member of staff can ask to see it, in writing, and the limits are precise: one request per person in any three months, covering a single month or consecutive months, going back no more than three years, ending before the date of the request. You then have four weeks to answer. They see the venue’s total and their own share — not what anybody else was paid, and the duty does not require a disclosure that would breach data protection law.
The clocks do not match, and that is the trap
Four record-keeping duties now sit on the same staff, and no two of them run for the same length of time or start on the same day.
The holiday one is the closest cousin and the easiest to confuse this with — it is six years, and it runs from the day each record was made, which is a different starting gun from the one here. Keeping tips records for three years does not help you there, and keeping holiday records for six does not satisfy section 27J either, because section 27J wants a different fact: what came in, and where it went.
Tips and the minimum wage never meet
One rule that has not moved since 2009 and still catches people out: tips do not count towards the National Minimum Wage. Regulation 10(m) of the 2015 regulations puts payments representing service charges, tips, gratuities and cover charges outside a worker’s remuneration for minimum wage purposes altogether.
So a good tipping week cannot lift an underpaid hour up to the floor. Wages reach the minimum on their own or they do not reach it at all, and the tronc is a separate stream of money sitting beside a wage bill that has to stand up by itself.
What is coming, and what has not arrived
Two changes are in the post, and neither is law yet as things stand.
Consultation before you write the policy. Section 14 of the Employment Rights Act 2025 will require a venue to consult its trade union or worker representatives — or, failing those, the workers themselves — before producing its first tipping policy, to review the policy at least every three years and consult again on every review, and to publish an anonymised summary of what people said. That last one is a fourth obligation most write-ups leave out. Note the review clock as drafted: it runs from the day the current policy was first made available, including where that day is before the provision comes into force — so a venue with a policy written in 2024 could be at or past three years the moment it switches on. It has not switched on. No commencement order has appointed a date, and the government’s own timeline of 25 August 2026 puts strengthening tipping law among measures taking effect by the end of 2026 without naming one.
A revised code of practice. A draft is out to consultation until 11:59pm on 29 September 2026. The July 2024 code is still the one in force, and stays so until the revised one replaces it.
A tribunal claim, not an inspection
Tips are not in the Fair Work Agency’s remit — Part 2B does not appear in the schedule listing what the Agency enforces. That is a real difference from holiday pay, which the Agency is intended to enforce directly from 2027.
For the tipping duties, the route is a member of staff bringing an employment tribunal claim. Twelve months for a complaint about the allocation or the payment itself; three months for a complaint about a missing policy or missing records. Early conciliation through Acas extends both. Compensation is capped at £5,366 since 6 April 2026 — a figure worth checking at source, because the government’s own guidance pages and the Acas pages both still print the old £5,000. A tribunal can also order the venue to redo an allocation, and to pay other staff who never complained.
What this means for how you keep the rota
Look again at the code’s list of fair factors, and notice the third one: hours worked during the period when tips are received. In a venue with a shifting rota it is one of the clearest and most measurable factors on that list, because it tracks something nobody has to argue about. The code does not rank its factors, and hours are not automatically the fairest choice for every venue — but they are the easiest to evidence, and they are the one factor that puts your rota inside your tipping compliance.
If you allocate on hours, the split is only ever as sound as the record of hours underneath it — and that record has to survive three years and be reproducible for a named person over a named month, because that is exactly the shape of request section 27J gives them. Add the fairness duty on top and you are being asked to show your working, not just your conclusion.
Three questions worth asking of whatever you use today:
- Can you show hours worked, per person, for the specific period a payout covered? A total for the month will not reconstruct a split that was made on a fortnight.
- Can you show the three figures separately — what came in, what you allocated, and what the tronc allocated? One running balance loses the working, and the working is the record.
- Would any of it still be there in three years, after the person has left? Hospitality turns over faster than the retention period does.
None of this requires software. It requires the hours to exist somewhere durable, tied to real people and real dates, and to be pullable for one person and one month without anyone reconstructing it from memory. If the rota already produces that as a by-product of running the venue, the three years look after themselves — and the six-year holiday duty next door is most of the way answered too.
And since tips never touch the minimum wage, the wage bill underneath all this has to stand on its own. It is worth knowing what that actually costs before the tips are counted at all.