Tips, tronc and fair allocation: a guide for hospitality employers

Since 1 October 2024, employers in England, Scotland and Wales have been under statutory duties covering how tips, gratuities and service charges are handled. The duties sit in the Employment (Allocation of Tips) Act 2023, which inserts new sections into the Employment Rights Act 1996, and are supported by a statutory Code of Practice. That employment-law framework does not extend to Northern Ireland, where employment law is devolved; operators with sites there should take advice on the position that applies locally. Separately — and this is where operators most often get caught out — the tax and National Insurance treatment of tips is governed by different rules again, and appointing someone to run a tronc does not by itself change that treatment.

This guide sets out, in plain English, what the framework requires, how a tronc fits in, and where the practical risks lie for hospitality operators. It is general information, not legal or tax advice.

What the Tipping Act requires

The Employment (Allocation of Tips) Act 2023 commenced on 1 October 2024. In broad terms, employers must:

• Pass on all qualifying tips, gratuities and service charges to workers without deductions, other than those required or permitted by legislation (for example tax).
• Allocate and distribute qualifying tips fairly and transparently, having regard to the statutory Code.
• Distribute qualifying tips no later than the end of the month following the month in which the customer paid them. A tip paid on 23 June must be distributed by 31 July at the latest (section 27G).
• Have a written tipping policy where qualifying tips are paid at a place of business on more than an occasional and exceptional basis, and make that policy available to workers (section 27I).
• Keep a record of qualifying tips received at the place of business and the amount allocated to each worker, maintained for three years from the date the tip was paid (section 27J).

Agency workers providing services at the place of business must be given due consideration where they are within scope, and the Code describes how the tipping policy should reach them. Fair consideration does not necessarily mean identical shares: it means they are not left out of the allocation decision without an objective and non-discriminatory basis.

Which tips are covered

The Act applies to "qualifying tips, gratuities and service charges": employer-received tips, and worker-received tips that are subject to employer control or significant influence (section 27C). The Code makes the point that the payment method — card, cash, app or QR code — does not decide the question. What matters is whether the employer receives the money, or controls or significantly influences how it is distributed.

• Card, app, QR and other digital tips may be employer-received or paid directly to the worker, depending on how the arrangement is set up. The technology itself does not determine the treatment: where the employer receives the money, or controls or significantly influences its distribution, the Act's allocation duties apply, and the PAYE and NIC position follows the actual facts of the arrangement.
• Cash tips are likely to be qualifying if the employer tells staff how to share them, or collects and redistributes them at the end of a shift or through payroll.
• Cash or app tips paid directly to an individual worker, which the employer neither receives nor influences, are generally outside the Act's allocation duties — though the worker still has their own tax obligations.

What "fair" means under the existing Code

The Code does not prescribe an exhaustive list of factors or a single correct method. It sets principles: employers should use a clear and objective set of factors, chosen so as to be fair and reasonable given the nature of the business, and should give due consideration to all workers involved in providing service, including agency workers. Equal shares for everyone are not required, but different shares need a legitimate basis.

The Code lists factors that may be considered, describing the list as illustrative rather than exhaustive:

• Type of role or work, for example the split between front of house and back of house.
• Basic pay, and how workers are engaged.
• Hours worked during the period in which tips were received.
• Individual and/or team performance.
• Seniority or level of responsibility.
• Length of time served with the employer.
• Customer intention.

Two further points from the Code carry real weight in practice. First, employers must avoid unlawful discrimination when selecting and applying factors, including indirect discrimination that may be unintentional — a risk where a group receiving a smaller share contains a disproportionate number of workers sharing a protected characteristic. Second, employers should consult workers to seek broad agreement that the method is fair, reasonable and clear, and should review the approach regularly as the team and the business change. Where a method is genuinely considered fair by the workers affected, that may help a tribunal conclude it is fair and reasonable — provided the support is genuine and not coerced.

The written tipping policy

The policy must set out how tips are accepted, how they are allocated and distributed, and what steps the employer takes to ensure tips are handled fairly and transparently. It must be in plain language, and an accessible format must be provided on request to a worker with a disability. All staff should have the same access to it, and agency workers must not be left unaware of it because they were not present at an induction.

A policy that is genuinely useful — rather than merely present — normally covers:

• Which payment types are treated as tips, and how mandatory and discretionary service charges are handled.
• The factors used to allocate tips, since the Code requires the factors considered to be stated in the policy.
• Who allocates: the employer directly, or an independent tronc operator.
• The distribution timetable and the payroll run through which payments are made.
• How records are kept, and how a worker makes a request to see the tipping record.
• How queries and disputes are raised and resolved internally.

Records and worker information rights

The tipping record must detail all qualifying tips received by the employer at the place of business and the amount allocated to each worker, and must be maintained for three years beginning with the date the tip was paid.

A worker may make a written request — limited to one request in any three-month period — to view the employer's tipping record for a period of up to the previous three years, provided they worked for the employer for the whole of the requested period. The employer must provide the total qualifying tips received at the relevant place of business in that period and the amount allocated to the worker making the request; the specific amounts paid to other workers are not disclosed. Records must be stored, processed and disposed of in line with data protection legislation.

What a tronc is, and what a troncmaster does

HMRC's E24 guidance on tips, gratuities, service charges and troncs defines a tronc as a special pay arrangement used to distribute tips, gratuities and service charges, and a troncmaster as the person, other than the employer, responsible for those arrangements. Where an independent troncmaster genuinely controls and distributes the tips, a separate tronc PAYE scheme will generally be needed, distinct from the employer's own scheme, unless HMRC agrees or requires a different arrangement. That is not automatic: where the employer decides the allocation, where a director or other company official acts as troncmaster, or where mandatory service charges are distributed through the tronc, PAYE responsibility can remain with the employer and the payments go through the employer's payroll. The employer must tell HMRC of a troncmaster's appointment and of any later change.

The Code confirms that using a tronc is one permitted way for an employer to meet its fairness duty. The independent tronc operator may be a member of staff appointed by the employer, a member of staff elected or agreed by the workers, or an external payroll or accountancy firm. Care is needed to maintain independence. If the employer sets a framework consistent with the principles of fairness and reasonably believes the tronc is operating independently and fairly, the employer is regarded as having complied with the Code — but if it later becomes aware the operator is acting unfairly or improperly, it must act, whether by instructing a change, replacing the operator or ending the arrangement.

Income Tax, PAYE and National Insurance

Income Tax is due on tips. The mechanism for collecting it depends on who pays them. Where an employer pays tips to employees, PAYE applies. Where customers pay tips directly to employees and the employees keep them with no employer involvement, PAYE does not apply and it is the employee's responsibility to tell HMRC. Where an independent troncmaster decides the allocation and makes the payments, the troncmaster is responsible for operating PAYE on them, normally through the tronc's own PAYE scheme.

The employer, not the troncmaster, remains responsible for operating PAYE where the employer is involved in deciding the distribution of tips, or where mandatory service charges are distributed through the tronc. That remains the case even if the mechanics are delegated to a trusted employee. If the employer, a partner or a company official — a director, for example — acts as troncmaster, HMRC treats the payments as made by the employer, so they go through the employer's payroll.

Why a tronc is not automatically outside National Insurance

National Insurance is a separate test, set out in E24 and in HMRC's National Insurance Manual at NIM02941. A payment of, or in respect of, a gratuity is disregarded from earnings for NIC purposes if either of two conditions is met: it is not paid, directly or indirectly, by the employer to the employee and does not comprise or represent money previously paid to the employer; or it is not allocated, directly or indirectly, to the employee by the employer. "Allocated" means deciding who receives what amount.

Whether either condition applies depends on the facts of the particular arrangement. HMRC notes that in most cases where an employer passes tips to an employee, both employer and employee NICs are due because neither condition is met. Appointing a troncmaster is therefore not, by itself, decisive: what matters is whether the employer is in substance determining the allocation. Where NICs are due on tronc payments, the liability rests with the employer, not the troncmaster.

Mandatory service charges, voluntary charges and VAT

The distinction between mandatory and voluntary charges matters in two places. For NIC, HMRC's position is that where a mandatory service charge is imposed and paid out to employees, National Insurance contributions are always due, regardless of how the money is shared. For VAT, tips given genuinely freely are outside the scope of VAT; a service charge customers are required to pay is part of the consideration for the underlying supply and is standard rated, whereas a charge customers have a genuine option not to pay is accepted as outside the scope even if it appears on the bill.

For a charge to be treated as voluntary, HMRC expects it to be clearly presented to the customer as entirely optional, with menus, bills and what staff say to customers all consistent on the point.

National Minimum Wage

For pay reference periods beginning on or after 1 October 2009, amounts paid by the employer representing tips, gratuities, service charges or cover charges do not count towards National Minimum Wage pay. Tips cannot be used to bridge a gap to the minimum wage: NMW must be met from pay in its own right.

Where things go wrong for workers

Employers should have fair internal processes for queries from workers who did not receive the share of tips they expected, giving equal weight to agency workers, and the Acas Code of Practice on disciplinary and grievance procedures should be followed. Acas can be approached for impartial advice by any party at any time.

If issues remain unresolved, a worker — including an agency worker — can bring a complaint to an employment tribunal under the Tipping Act, based on failures around fair allocation and distribution, around the written policy and records, or both. Where a tribunal finds such a complaint well founded, the Code states that it can make a declaration to that effect, order the employer to revise a previous allocation of tips, make a non-binding recommendation on a previous allocation, or order the employer to pay compensation, which may extend to other workers at that place of business who did not themselves complain. Time limits and remedies are matters of law and depend on the type of complaint; specific claims should be checked against the Act and appropriate advice taken.

A practical implementation checklist

Common mistakes

1. Assuming a tronc removes National Insurance. The NIC disregard depends on the two statutory conditions and the facts, not on the label.
2. Employer involvement in allocation while presenting the arrangement as independent. This can move both PAYE responsibility and the NIC position.
3. Running mandatory service charges through the tronc, where HMRC's position is that NICs are due in any event.
4. Excluding kitchen or agency staff without an articulated, objective and non-discriminatory basis.
5. A policy that describes the mechanics but never states the allocation factors.
6. Records that show totals distributed but not what each worker received.
7. Treating the withdrawn 2026 revised Code as though it were in force.

When to bring in support

Two disciplines meet here. The employment-law questions — fairness of the method, discrimination risk, consultation, policy drafting and tribunal exposure — are for an employment law adviser. The payroll and tax questions — PAYE scheme structure, the NIC analysis on your specific facts, and reporting — sit with your accountant or payroll provider. We work with hospitality operators on the finance and payroll side through our hospitality finance and CFO support and payroll and compliance services. If you would like to talk through how your current arrangement is set up, get in touch.