What Is a TRONC Scheme and How Does It Work for Hospitality Employers?

In every restaurant kitchen worth eating in, there is a system. Not the one on the menu. The one that determines what happens to the money left on the table at the end of the meal — the service charge, the cash tip folded into the bill holder, the contactless tap before the couple leave.

That system has a name. It has legal obligations attached to it now that didn't exist two years ago. And it has a tax structure that, when operated correctly, saves both the employer and the employee money on every pound that passes through it.

It's called a TRONC.

A TRONC scheme is a formal arrangement for pooling and distributing tips and service charges to hospitality workers, managed by an independent troncmaster. Under a properly constituted TRONC, payments are subject to Income Tax but exempt from both employer and employee National Insurance. On a hospitality operation distributing £150,000 a year in tips, that NI saving — at current rates — is approaching £24,000 per year between the employer and employees combined.

But only if the TRONC is run correctly. And only if the employer has updated their arrangements for the 2023 legislation that changed the rules permanently.

How the NI Exemption Works

Standard employment income attracts both employer NI (15%) and employee NI (8% up to the upper earnings limit). TRONC payments, when structured correctly, attract neither.

The exemption exists because the TRONC is operated independently of the employer. The employer collects the service charge or tip. The money passes to the TRONC. The troncmaster — not the employer — decides how it is allocated and distributed. The troncmaster operates a separate PAYE scheme registered specifically for TRONC income. Income Tax is deducted and remitted through that scheme. NI is not charged because the payment is not technically remuneration from the employer.

The independence of the troncmaster is not a formality. It is the legal foundation of the NI exemption. If HMRC can demonstrate that the employer controls or significantly influences how TRONC payments are distributed — that the troncmaster is effectively following the employer's instructions — the independence test fails and the NI exemption is disallowed. Retrospectively. With interest.

The Employment (Allocation of Tips) Act 2023 — What Changed

Before 1 October 2024, employers had significant latitude in how they handled tips. Some passed them all to staff. Some retained a portion for administration. Some used service charges to subsidise labour costs. Some didn't have a policy at all.

That flexibility is gone.

From 1 October 2024, the Employment (Allocation of Tips) Act 2023 requires:

100% of tips must go to workers. The employer cannot retain any portion of a tip or service charge, regardless of what the employer's terms of business say. Administration fees deducted from TRONC distributions are not permitted under the new rules.

A written tips policy must exist and be accessible to all workers. The policy must explain how tips are allocated, when they are paid, and how workers can query their allocation.

Records must be kept for three years. How much was collected, how it was allocated, who received what.

Workers can request a statement. Any worker can ask for a record of tip allocations affecting them. The employer must provide it within four weeks.

Employment Tribunal claims are available. A worker who believes tips have been withheld or unfairly allocated can bring a claim. The tribunal can order payment of tips owed plus compensation.

Tips and the National Minimum Wage

This is the part that has broken pay structures in hospitality operations that were built around the old rules.

Tips cannot be used to top up pay to the National Minimum Wage. They never could, technically, under the old legislation — but the new Act makes it unambiguous. Basic pay must hit the NMW independently. Tips sit on top.

A front-of-house worker on £11.50 per hour with £2.00 per hour in TRONC income is being paid £11.50 per hour for NMW purposes. That is below the National Living Wage from April 2026 (£12.71 per hour). The employer is underpaying. The TRONC income is irrelevant to the NMW calculation.

Hospitality operations that structured their pay to rely on service charge income to meet wage floors need to review those structures. The review is urgent. HMRC and Employment Tribunals are both active in this space.

Setting Up a TRONC — the Structure

A TRONC requires:

A troncmaster who is genuinely independent of the employer — an employee elected by the tronc members, a third party, or a payroll bureau operating in that capacity. Not the general manager. Not the owner's spouse. Someone who can demonstrate that allocation decisions are made independently.

A separate PAYE scheme registered by the troncmaster with HMRC — distinct from the employer's main payroll. TRONC payments are reported through this scheme's RTI submissions.

A distribution policy agreed between the troncmaster and the tronc members — how points are allocated, which roles participate, how service charge versus cash tips are treated, how new starters enter the pool.

Records of every distribution — amounts collected, amounts distributed, each recipient, each period. These records support the TRONC's NI exemption in the event of an HMRC review and satisfy the three-year record-keeping requirement under the 2023 Act.

What HMRC Reviews Look For

HMRC's compliance activity in the hospitality sector includes specific review of TRONC arrangements. The questions they ask:

Is the troncmaster genuinely independent, and can you demonstrate that independence? Is the PAYE scheme correctly registered and RTI submissions current? Are tip payments going entirely to workers or is any amount being retained? Are the NMW calculations using basic pay only, without TRONC income? Have workers received the written tips policy they're entitled to?

A TRONC that passes these questions is a legitimate NI saving. One that fails any of them is a liability — potentially including back-dated NI on every TRONC distribution made while the arrangement was non-compliant.

bookd. manages payroll for hospitality businesses including TRONC scheme administration and compliance with the 2023 Tipping Act requirements. If your operation runs a service charge and hasn't reviewed the arrangement since October 2024, the compliance position is worth examining before HMRC does it for you.