Tronc Systems: UK Employment Law Guide

A tronc is a formal system for collecting and distributing tips, gratuities and service charges to workers, usually in hospitality or service-led businesses. Although common in restaurants, bars, hotels and venues, a tronc carries specific legal and tax requirements that employers must understand. A properly run tronc can deliver meaningful benefits for workers while offering legitimate National Insurance advantages to employers. However, a badly run tronc exposes the business to HMRC intervention, payroll liabilities and potential employment law claims. HMRC focuses heavily on whether the troncmaster, rather than the employer, genuinely controls allocation, and this independence is central to whether employer National Insurance contributions are payable. As changes under the Employment (Allocation of Tips) Act 2023 and the statutory Code of Practice on fair and transparent distribution of tips take effect, HR teams must ensure that their tronc arrangements are compliant, transparent, documented and capable of withstanding HMRC and tribunal scrutiny.

What this article is about: This article provides HR professionals and business owners with a comprehensive and practical guide to tronc systems under UK employment and tax law. It explains what a tronc is, how it differs from employer-managed tipping arrangements, what responsibilities fall on the troncmaster, and how PAYE and National Insurance must be handled, including the requirement for a separate PAYE registration where the tronc is genuinely independent. It also covers the interaction between the Tipping Act 2023 and tronc operations, including statutory duties on fairness, record-keeping, payment deadlines and worker access to information, the legal risks where employers exert control, and the practical steps HR teams should take to implement, govern and monitor tronc processes effectively. The aim is to give employers a clear foundation for operating a tronc lawfully, fairly and in a way that supports workforce relations while managing HMRC and employment law risks.

Section A: What a tronc is and when it can be used

1. Definition of a tronc

A tronc is an arrangement for distributing tips, gratuities and service charges through a central pool that is administered by someone who is not the employer. HMRC defines a tronc as a system where tips are collected and shared out by an individual known as a troncmaster, acting independently of the employer. The distinguishing legal feature of a tronc is that the employer does not determine how much each worker receives and does not control the distribution rules.

A tronc can be formal or informal, but for tax purposes it must operate in a way that demonstrates real autonomy from management. HMRC focuses heavily on the independence of the troncmaster when determining whether a tronc exists and whether the NIC advantages apply. The legal threshold for “influence” is low: even indirect pressure, informal expectations, management “suggestions” on which staff should benefit or what weight to give to different roles can be enough to undermine independence.

In practice, HMRC will look at the evidence. Emails from managers, text messages, written procedures that build tronc allocation into managerial responsibilities, contractual wording, or payroll processes that allow managers to amend allocations can all be used to show that the employer, not the troncmaster, really controls the system. Independence must extend to who decides the distribution rules, who determines eligibility and how any performance or attendance criteria are applied.

A tronc is not the same as voluntary tip sharing among staff or employer-led discretionary bonus arrangements. It is a specific structure recognised in HMRC guidance, with compliance consequences where the conditions are not met. If the employer influences, directs or approves how tips are allocated, HMRC may treat the payments as employer-managed, which alters the tax and National Insurance treatment and can generate retrospective liabilities.

2. Types of payments a tronc can cover

A tronc can cover a range of voluntary payments left by customers, provided those payments fall within the recognised categories of tips, gratuities or service charges. This includes:

• Cash tips left directly with staff
• Card tips added through a payment terminal
• Discretionary or optional service charges applied by the business and paid by the customer
• Mandatory service charges that the business chooses to allocate to staff through a tronc rather than retaining as revenue
• Tips collected centrally through digital platforms or QR-based tipping systems

These sums may be pooled and allocated via the tronc only if the troncmaster has genuine control over distribution. The fact that a service charge is mandatory does not, by itself, prevent it being included in a compliant tronc. What matters is whether the employer retains the sums as business income or passes them into a tip pool, and whether allocation of that pool is controlled independently by the troncmaster. Where the employer dictates which staff receive shares, sets fixed percentages or approves changes, HMRC is likely to conclude that the arrangement is employer-managed, regardless of how the charge appears on the customer’s bill.

Some payments cannot properly be included in a tronc because they fall outside HMRC’s definition of tips or because entitlement arises directly under the employment contract. Examples include:

• Payments contractually promised by the employer as part of basic pay
• Sales-based commission or incentive payments
• Guaranteed bonuses or allowances written into the contract
• Elements of pay that count towards National Minimum Wage compliance

Where employers impose conditions on how tips are allocated, or dictate proportions or payment rules, the arrangement may cease to qualify as a tronc and will instead be treated as normal pay, with full PAYE and employer NICs. The Employment (Allocation of Tips) Act 2023 strengthens the position of workers by requiring that employers pass on tips in full and maintain a fair and transparent distribution system. These statutory obligations apply whether tips are distributed directly by the employer or via a tronc, and they sit alongside existing HMRC rules. As a result, it is more important than ever that tronc rules clearly explain what payments are included, how they are shared and how the employer ensures compliance with the statutory Code of Practice.

3. Why employers use tronc systems

Employers use troncs for several reasons, including administrative efficiency and improved fairness in distribution. However, the most significant reason in many hospitality and service businesses is the National Insurance treatment. Where a tronc is operated independently by a troncmaster and HMRC accepts that the employer does not influence allocation, employer National Insurance contributions (NICs) are not payable on tronc payments. This can represent a substantial saving for businesses with high volumes of tipping.

A tronc can also help build trust among workers by removing employer discretion from the allocation process. Workers tend to view tronc payments as fairer because distribution rules are set and applied by someone from within the workforce rather than by management. Transparent criteria, communicated clearly and applied consistently, can support morale, reduce disputes and reinforce the perception that tips and service charges are being handled fairly.

Finally, troncs help separate tips from standard payroll processes while still ensuring compliance with PAYE. When run properly, they provide structure, consistency and transparency in workplaces where tip income forms a significant part of overall earnings. From a governance perspective, a tronc system makes it easier to demonstrate how tips have been handled, which staff have received them and on what basis decisions were made, thereby supporting the employer’s position during HMRC reviews or tribunal proceedings.

Section A Summary

Section A establishes that a tronc is a legally recognised arrangement for distributing tips, gratuities and service charges through an independent troncmaster. Its defining feature is employer non-interference. Independence is assessed on the evidence and the threshold for employer “influence” is low, meaning even informal or indirect direction can undermine the status of the tronc. Only genuine tips and service charges can be included, and payments that arise from contractual obligations or form part of basic pay must remain outside the tronc. Employers use troncs to support fairness, improve staff relations and benefit from favourable National Insurance treatment, but these advantages depend entirely on the tronc being genuinely independent and operated in line with HMRC rules and the statutory regime under the Employment (Allocation of Tips) Act 2023.

Section B: The troncmaster role

1. Who can be a troncmaster

The troncmaster is the individual responsible for managing the tronc, setting the rules that govern distribution and allocating payments among eligible workers. HMRC requires that the troncmaster operates independently of the employer. This means the employer must not dictate allocation methods, approve distribution rules, influence eligibility decisions or impose performance criteria that affect how the tronc is shared.

Typically, a troncmaster is a senior or trusted worker chosen by peers, although the law does not prescribe who must hold the role. Employers may suggest a candidate but must not impose one or exert pressure to appoint someone aligned with management preferences. Crucially, the troncmaster must not be subject to managerial oversight in matters relating to tronc distribution.

Managers can act as troncmaster, but this creates significant risk. HMRC may presume employer influence where the individual has managerial responsibility, even if they act impartially. Independence is a factual test assessed through evidence, not job title. If HMRC finds that managerial control or employer oversight has shaped distribution decisions, the tronc will not qualify as independent and employer NIC relief will be lost.

2. Responsibilities of a troncmaster

The troncmaster must oversee the tronc in accordance with HMRC rules and the statutory Code of Practice on fair and transparent distribution of tips. Their responsibilities include:

• Establishing and maintaining written distribution rules
• Determining eligibility criteria for tronc participants
• Managing the tronc fund and calculating individual allocations
• Operating PAYE correctly on tronc payments
• Registering a separate PAYE scheme for the tronc where it is genuinely independent
• Providing accurate allocation data to payroll without employer alteration
• Keeping detailed records of distributions and calculations for at least three years
• Ensuring the tronc remains independent and free from employer influence

The troncmaster does not need to be a payroll specialist, but they must understand PAYE obligations and ensure that payroll receives correct, complete information. Although employers may provide training and administrative support, this support must not cross the boundary into directing or influencing decisions about distribution. The troncmaster’s autonomy must remain preserved and demonstrable. HMRC will assess not only written rules but also how decisions are made in practice.

3. Governance, policies and transparency

Every tronc should operate under a clear set of written rules. These rules should explain how funds are collected, recorded and distributed; who is eligible to participate; what criteria are used in the allocation formula; and how disputes are resolved. Written rules provide transparency for workers and evidence for HMRC that decisions are made independently of the employer.

The Employment (Allocation of Tips) Act 2023 requires employers to maintain a written tipping policy and ensure that workers understand how tips are handled. Even though the troncmaster controls the tronc, the employer remains legally responsible for meeting transparency duties. The statutory Code of Practice requires fairness, consistency and objectivity. Allocation criteria must be evidence-based and must not discriminate between workers or groups of workers unless objectively justified.

Workers have a statutory right to access tipping records within a reasonable period, up to three years. Records must be supplied within four weeks of a request. Employers must ensure these access rights can be fulfilled, even where the troncmaster maintains the records. Failure to do so can lead to tribunal claims and undermine confidence in the tronc system.

Good governance also requires periodic review. HR teams should monitor whether the tronc continues to operate independently, ensure that criteria remain fair and aligned with the Code of Practice and verify that PAYE is being correctly applied. Businesses with multiple sites may operate separate troncs, but each must have independent rules, its own troncmaster and discrete governance and payroll records.

Section B Summary

Section B confirms that the troncmaster is central to the legal and tax compliance of a tronc. Their independence determines whether the tronc qualifies for favourable National Insurance treatment and whether the employer avoids liability for backdated NICs. The troncmaster sets and applies distribution rules, manages eligibility decisions, operates PAYE through a separate tronc PAYE scheme and maintains statutory records. Employers must support transparency and compliance without interfering in decisions, and written governance aligned with the statutory Code of Practice is essential to maintaining a compliant tronc.

Section C: Tax, NI and payroll treatment

1. PAYE rules for tronc payments

Tronc payments are taxable earnings. HMRC requires PAYE to be operated on all tronc distributions, regardless of whether the employer controls the allocation. The critical distinction is who is responsible for operating PAYE. Where the tronc is genuinely independent, the troncmaster must register the tronc as a separate PAYE scheme. The troncmaster then becomes the “other payer” for PAYE purposes, responsible for calculating tax, submitting RTI returns and ensuring compliance with payroll requirements.

In practice, troncs often integrate with employer payroll software for administrative convenience, but this is only permissible where the troncmaster provides instructions and retains full control over allocation. Employers must not adjust, override or approve the troncmaster’s figures. If HMRC identifies that payroll has been used in a way that enables employer influence, it may conclude that the tronc is not independent.

If the employer influences allocations—directly or indirectly—PAYE responsibility reverts to the employer. HMRC may also seek retrospective corrections, including penalties and interest for incorrect RTI submissions. Payroll teams must therefore keep a clear distinction between tronc payments and standard wages, with allocation data coming solely from the troncmaster.

2. National Insurance treatment

The principal tax benefit of a compliant, independently run tronc is that employer National Insurance contributions (NICs) are not payable on tronc payments. This exemption applies only if the troncmaster exercises full control over allocation. The employer must not participate in decisions about who receives what, how formulas are applied or what criteria are used to assess performance or eligibility. Even subtle or informal influence can jeopardise the NIC position.

Where HMRC determines that the employer has exercised influence, employer NICs become payable on all relevant tronc payments. HMRC may also pursue arrears going back several years, depending on the facts. For employers with large tronc values, the financial exposure can be substantial. HMRC typically examines:

• Emails or messages showing managerial involvement
• Payroll controls indicating employer approval of allocation figures
• Contractual wording implying employer supervision of tronc rules
• Inconsistencies between written rules and operational practice

To maintain NIC exemption, employers must ensure operational independence, clear governance and robust evidence demonstrating that distribution decisions are made exclusively by the troncmaster.

3. Record-keeping and HMRC reporting

HMRC expects troncs to maintain comprehensive records that demonstrate independent control and correct PAYE operation. The statutory Code of Practice and the Tipping Act require employers and troncmaster alike to ensure transparency and accuracy. Required records include:

• The tronc’s written rules and any updates
• Amounts collected, whether as tips, gratuities or service charges
• Allocation formulas and evidence of how they were applied
• Payslips or statements showing tronc payments and operated PAYE
• RTI submissions by the troncmaster’s PAYE scheme
• Requests from workers to access tipping records and responses

These records must be kept for a minimum of three years. Under the Tipping Act, workers may request access to tipping records and must receive them within four weeks. Employers must ensure this is operationally possible, even where the troncmaster holds the primary records.

During an HMRC compliance review, officers will examine the evidence of independence, reviewing communications, governance structures, payroll processes and worker access rights. Detailed, contemporaneous record-keeping is essential for demonstrating compliance and defending NIC exemption.

Section C Summary

Section C clarifies that PAYE must be applied to all tronc payments and that an independent tronc requires its own PAYE registration operated solely by the troncmaster. Employer NIC exemption depends entirely on demonstrable independence. HMRC will scrutinise evidence to determine whether influence exists in practice. Accurate, well-maintained records, clear governance and strict separation between employer payroll processes and the troncmaster’s decisions are critical to maintaining compliance and safeguarding the business from retrospective liabilities.

Section D: Compliance risks and HR best practice

1. Legal risks under the Tipping Act

The Employment (Allocation of Tips) Act 2023 introduces statutory duties that apply to all employers handling tips, regardless of whether a tronc is used. Employers must pass on all qualifying tips to workers in full, without deductions other than PAYE tax. Tips must be distributed fairly and transparently, in line with the statutory Code of Practice. Employers must have a written tipping policy and retain tipping records for at least three years. Workers also have a statutory right to access records, which must be provided within four weeks of a request.

A tronc can assist with compliance, but the employer remains responsible for ensuring alignment with the Act. Common legal risks include:

• Insufficient transparency or unclear allocation formulas
• Failure to maintain or provide statutory tipping records
• Managers influencing or controlling tronc distribution decisions
• Treating tronc distributions as a means of offsetting payroll errors or shortages
• Missing statutory deadlines for passing on tips

Breaches may lead to tribunal claims under the Employment Rights Act 1996, orders requiring repayment to workers and reputational risks. Where tips form part of workers’ normal remuneration, compliance with the Working Time Regulations also relies on accurate calculations and record-keeping.

2. Employment law risks

Tronc arrangements intersect with several areas of employment law. If tronc payments are withheld, misallocated or delayed, workers may bring unlawful deduction from wages claims under Part II of the Employment Rights Act 1996. Claims can reach back up to two years. Poor governance or lack of documentation can make it difficult for employers to defend claims effectively.

Holiday pay is a key area of risk. Where tronc payments form part of a worker’s “normal remuneration” because they are regular and predictable, they must be included in holiday pay calculations in line with case law such as Bear Scotland and Lock. This applies regardless of whether the employer controls allocation. Employers should review patterns of tronc income to determine whether it meets the threshold for inclusion in holiday pay and adjust calculations accordingly.

Employment contracts require careful drafting. Contracts should reference participation in a tronc on a non-contractual, discretionary basis to avoid implying employer control. Contractualising tronc rules or referring to tronc income as part of pay can jeopardise independence and affect National Minimum Wage compliance. Tronc payments cannot be used to meet minimum wage obligations.

3. HR and operational controls

HR plays a central role in ensuring tronc systems remain compliant without interfering in decisions reserved for the troncmaster. Effective operational controls include:

• Maintaining a clear, accessible written tipping policy aligned with the statutory Code of Practice
• Documented tronc rules controlled solely by the troncmaster
• Training for managers to avoid influencing or directing tronc decisions
• Regular audits to confirm independence and compliance with PAYE and NIC rules
• Monitoring allocation formulas for fairness, consistency and transparency
• Ensuring prompt payment of tips no later than the end of the month following receipt

HR teams must ensure that tronc processes remain operationally separate from employer-led payroll decisions. Employers may support administration but must not adjust or approve allocation figures. Consistent communication, access to records and documented governance procedures help mitigate risk and build trust among workers.

Section D Summary

Section D confirms that employers face a range of statutory, tax and employment law risks if tronc systems are not correctly structured and governed. The Tipping Act imposes new duties on fairness, transparency, record-keeping and payment deadlines. HMRC scrutiny focuses on independence and accurate PAYE operation, while tribunal claims may arise where workers allege misallocation or unlawful deduction. Strong governance, clear contractual drafting, strict separation of responsibilities, regular audits and effective manager training provide HR teams with the controls needed to operate a legally compliant and trusted tronc system.

FAQs

Is a tronc compulsory under UK law?
No. Employers are not required to operate a tronc. A tronc is an optional method for pooling and distributing tips. However, where a business uses a tronc, it must comply with HMRC rules, register a separate PAYE scheme where the tronc is genuinely independent and meet statutory duties under the Employment (Allocation of Tips) Act 2023, including transparency, record-keeping and payment deadlines.

Does a tronc affect National Minimum Wage compliance?
Yes. Tronc payments do not count towards National Minimum Wage calculations. Workers must receive at least the statutory minimum through their contractual wages, irrespective of tronc income. A tronc cannot be used to top up pay to reach the minimum wage.

Can managers be included in a tronc?
Managers can legally be included, but this creates compliance risk. HMRC may infer employer influence where managers receive tronc payments or participate in decisions. This can compromise the tronc’s independence and lead to retrospective employer NIC liabilities. Employers should consider whether inclusion is appropriate and ensure governance documents make the position clear.

Can a business operate multiple troncs?
Yes. Multi-site operators or organisations with distinct operational divisions may run more than one tronc. Each tronc must have its own troncmaster, written rules, PAYE registration and standalone governance. Cross-site influence can undermine independence, so clear separation is required.

What happens if HMRC does not accept the tronc as independent?
If HMRC determines that the employer influenced allocation decisions, employer NIC becomes payable on all tronc payments, often retrospectively. HMRC may also issue penalties and interest for incorrect PAYE operation. Strong evidence of independence—emails, governance documents, operational processes—is essential for defending the tronc’s status.

Do workers have a legal right to see tronc records?
Yes. Under the Tipping Act 2023, workers may request access to tronc and tipping records, which must be provided within four weeks. Employers must ensure these access rights can be fulfilled even if the troncmaster holds the primary records.

Should tronc rules be written into employment contracts?
No. Employment contracts should refer to participation in a tronc as discretionary and non-contractual. Contractualising tronc rules or describing tronc payments as wages may indicate employer control and jeopardise NIC treatment. Contracts must also make clear that tronc payments do not count toward minimum wage compliance.

How often should tronc payments be distributed?
There is no statutory frequency, but most businesses distribute tronc payments weekly or monthly. Payments must meet the statutory deadline of no later than the end of the month following receipt. Consistency and transparency are important, and the cycle should be documented in tronc rules.

Is holiday pay affected by tronc payments?
Potentially. If tronc payments form part of a worker’s normal remuneration because they are regular and predictable, they must be included in holiday pay calculations. Employers must monitor income patterns and apply a 52-week reference period in line with Working Time Regulations and relevant case law.

Conclusion

A tronc can be an effective and fair method of distributing tips, gratuities and service charges, but only when structured and governed in line with UK employment and tax law. The troncmaster’s genuine independence is central to maintaining a compliant tronc, preserving employer NIC exemption and ensuring PAYE is correctly operated. Employers must meet statutory duties under the Employment (Allocation of Tips) Act 2023, including maintaining written policies, ensuring fair and transparent allocation and providing workers with access to records within statutory deadlines.

Effective tronc management depends on clear governance, documented rules, accurate payroll processes and operational separation between employer-led decisions and troncmaster-controlled allocation. Holiday pay, unlawful deduction claims and National Minimum Wage compliance all intersect with tronc systems, making accuracy and oversight essential. A compliant tronc enhances workforce trust, reduces financial exposure and supports legal certainty, while a poorly governed system can lead to HMRC challenges, tribunal claims and significant retrospective liabilities.

With regular audits, clear communication and robust internal controls, HR teams can operate tronc systems lawfully and confidently, ensuring both compliance and positive workforce relations.

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