The Employment (Allocation of Tips) Act 2023 Checklist: 5 Steps to Ensure Your Tronc is 100% Compliant

The landscape of employee tipping in the UK has fundamentally shifted. With the Employment (Allocation of Tips) Act now in effect, the way your business handles gratuities is no longer a matter of policy, it's a matter of law. You must now ensure that 100% of tips are passed to staff, and you must do so fairly and transparently.

Failure to comply doesn't just risk hefty fines; it can erode staff trust, increase turnover, and trigger unwanted attention from HMRC. The good news is that a properly managed, compliant Tronc Scheme is not just a legal shield, but a powerful financial tool that secures significant National Insurance (NIC) savings for both you and your employees.

To help you navigate these complex changes, we’ve developed a simple, actionable 5-step checklist to ensure your tip distribution system is compliant and fair.

Step 1: Formalise Your Allocation Principles (The 'Fairness' Step)

The most significant requirement of the new Employment (Allocation of Tips) Act 2023 is the legal mandate that all tips must be distributed fairly. This means a measurable standard that requires a clear, agreed-upon methodology.

Building Your Tronc Constitution

1. Define Your Distribution Method: You must decide how tips will be split. The most common methods involve a formula based on one or a combination of the following:

   • Hours Worked: Distributing tips purely based on the number of hours an employee has worked during the tipping period.

   • Job Role/Points System: Assigning different weightings (points) to different roles (e.g., Senior Waiter = 1.5 points, Kitchen Porter = 1 point) to reflect contribution and responsibility.

2. Include Back-of-House (BOH): Historically, this has been a grey area. The new legislation is clear: all workers who contribute to the customer experience, including chefs, kitchen assistants, and cleaning staff, must be included in the distribution. Your constitution must specify how you will fairly reward these essential team members.

3. Conduct Staff Consultation: The rules cannot be dictated unilaterally. You are required to consult with staff members on the fair distribution method. This ensures buy-in, transparency, and a defensible position should a dispute arise.

Crucial Note: Your agreed-upon distribution rules are the foundation of your entire Tronc scheme, they are essentially the scheme's written 'constitution.' This document must be detailed, transparent, and legally sound.

Why Partnering with a Troncmaster is Key Here:

An independent third-party, like Troncmaster Solutions, can act as an impartial facilitator for your staff consultation, which is vital for compliance. We help you design a robust, bespoke points system that not only satisfies the 'fairness' requirement but is also optimised for your business structure (e.g., multi-site operations or different staff tiers).

Step 2: Appoint a Truly Independent Troncmaster (The 'Independence' Step)

The role of the Troncmaster is the single biggest factor determining the financial viability of your scheme. A compliant Tronc scheme is not simply a tip-pooling arrangement; it is a legal structure designed to exempt tips from Employer National Insurance Contributions (NICs). This exemption is only valid if the allocation of tips is handled by a party that is genuinely independent of the employer.

Understanding Independence and Liability

1. Secure the NIC Exemption: The core benefit of a Tronc is the saving of approximately 15% on Employer's NICs and up to 8% on Employee's NICs on all distributed tips (as of April 2025). This translates directly to thousands of pounds saved annually for the business and more take-home pay for staff.

2. Define Who Cannot Be the Troncmaster: To maintain independence, the person cannot be the employer, a director, or any manager who has a direct influence on employment terms, such as hiring, firing, or disciplinary actions. If an employer or business official performs this role, the NIC exemption is lost, and the tips are treated as normal wages.

3. Transfer the Administrative and Tax Burden: An independent Troncmaster is responsible for operating a separate Pay As You Earn (PAYE) scheme for the tips and reporting distributions to HMRC. They take on the liability for ensuring the correct tax is paid on the tips.

Warning: Appointing an internal employee (e.g., a Head Waiter or a non-director Accountant) can appear independent, but this creates a single point of failure and places significant personal tax liability on that employee. If they mismanage the scheme, the business faces penalties, and the individual Troncmaster is at risk.

Why Partnering with a Troncmaster is Key Here:

Appointing an external, professional Troncmaster service instantly guarantees the non-influence and independence required by HMRC. Troncmaster Solutions handles the full administrative burden, removes personal liability from your employees, and ensures your scheme remains compliant year after year, guaranteeing those valuable NIC savings.

Step 3: Establish a Clear Written Policy (The 'Transparency' Step)

The Tipping Act has removed all ambiguity regarding staff communication. It is now a legal requirement for employers to have a formal, written tipping policy that is easily accessible to all staff. Transparency is the antidote to suspicion and the foundation of high staff morale.

What Your Policy Must Include

Your policy must serve as the single source of truth for all tip-related matters. It should clearly outline the following essential components:

1. Scope of Tips: Clearly define which types of payments are included in the Tronc (e.g., cash tips, card tips, discretionary service charges) and which are not.

2. Allocation Rules: Directly reference the distribution method (e.g., the points system) established in Step 1. Staff need to see the formula that dictates their pay.

3. Payment Schedule: State the exact frequency of tip payments. Since tips must be paid by the end of the month following the month they were received, your policy must reflect a timely process.

4. No Deductions Clause: Reiterate that no deductions are taken from the tip pot for operational or administrative costs. The only deductions should be PAYE income tax (managed by the Troncmaster) and any statutory deductions (like Student Loan repayments, where applicable).

5. Right to Request Records: The policy must explicitly detail the new statutory right for a worker to request a record of their tip allocations once every three months.

Essential Requirement: The policy must be in writing and shared with all workers before they are paid any tips through the scheme. Make sure it's part of your new-starter onboarding process.

Why Partnering with a Troncmaster is Key Here:

Drafting a legally watertight policy that balances tax compliance with fairness can be challenging. Troncmaster ensures that your documentation meets every requirement of the new Act.

Step 4: Ensure Timely Distribution (The 'Timing' Step)

One of the most practical changes introduced by the Tipping Act is the legal deadline for tip distribution. Under the new rules, all qualifying tips, gratuities, and service charges must be paid to staff no later than the end of the month following the month in which they were paid by the customer.

For example, if a customer pays a tip on October 10th, the tip must be distributed to the relevant employees no later than November 30th.

Optimising Your Payment Cycle

1. Map Out Your Current Timeline: Review your existing payroll and tip-handling process. If you currently distribute tips quarterly or even in the middle of the following month, you are at high risk of non-compliance. You must implement a new, faster cycle.

2. Synchronise Data Flow: A timely distribution requires a seamless flow of data: tips received > calculation by the Troncmaster > payment via the payroll system. Any delay in collecting tip data (especially from card machines or digital platforms) or running the allocation calculation will push you past the deadline.

3. Prepare for Peak Periods: During busy seasons, the volume of tips and employee turnover increases. Your system must be robust enough to handle these peaks without compromising the legal deadline. Manual processes are highly susceptible to error and delay.

Why Timing Matters: Beyond legal compliance, timely payment is a huge morale booster. Staff rely on tips as a significant part of their income. Receiving that income quickly and reliably fosters trust and motivation.

Why Partnering with a Troncmaster is Key Here:

A professional, outsourced Troncmaster service is built on efficiency. Troncmaster Solutions leverages secure, proprietary systems to guarantee adherence to the legal deadline:

• Automated Calculations: We process the complex allocation (as defined in Step 1) quickly.

• Guaranteed Deadlines: We manage the distribution schedule to ensure tips are processed and available for payment well within the month-end deadline.

• Seamless Integration: Payments are processed securely and seamlessly, removing the internal administrative headache.

Step 5: Maintain Meticulous Records (The 'Audit' Step)

Record-keeping is often overlooked until an issue arises, but under the new Act, it has become a non-negotiable compliance pillar. The government mandates that businesses must keep comprehensive records of all qualifying tips and their allocation for a period of three years from the date the tip was paid.

This is your legal defence and the evidence you’ll need to satisfy both HMRC and your employees.

Actionable Advice: Creating an Auditable Paper Trail

1. Track the Tip Journey: Your records must show the full lifecycle of every tip, from the moment it is paid to the final distribution. This includes:

   • The total amount of tips collected per period.

   • The exact calculation used to determine each worker's share (referencing your constitution).

   • The date and amount of the payment made to each worker.

   • Any statutory deductions (Income Tax) applied to the tip payment.

2. Handle Employee Requests: Be ready to comply with the new right for employees to request their tip records every three months. You have a limited timeframe to provide this information, meaning your records must be instantly accessible and clear.

3. Prepare for Scrutiny: Should HMRC or an Employment Tribunal review your scheme, they will primarily look at your records. Disorganised, incomplete, or inconsistent records will immediately raise red flags and risk triggering backdated tax and NIC liabilities.

The Cost of Poor Records: Inconsistent or missing records can lead to the loss of the entire NIC exemption, meaning you could be forced to pay 15% Employer's NICs on all historical tip payments, a devastating financial penalty for many businesses.

Why Partnering with a Troncmaster is Key Here:

The burden of three-year record-keeping is substantial, especially for busy hospitality operators. Troncmaster Solutions provides:

• Secure, Digital Storage: We maintain all tip distribution data, allocation calculations, and payment records on secure, cloud-based platforms.

• Instant Reporting: We generate and provide the necessary reports for HMRC filings and, crucially, for employee requests, ensuring you meet the compliance deadlines effortlessly.

• Audit Defence: Our meticulous, independent records provide the best possible defence and peace of mind, allowing you to focus on your core business.

Get Your Tips In Order

The new Tipping Act is more than just a regulatory hurdle; it's an opportunity to build a more transparent, trusting, and efficient business.

By following this 5-step checklist, formalising your principles, appointing an independent Troncmaster, establishing a clear policy, ensuring timely distribution, and maintaining meticulous records, you not only achieve compliance but also secure valuable NIC savings and significantly boost staff morale and retention. Don’t risk costly fines or damaging your team’s trust by handling this complex legislation internally. Let the experts manage your compliance.

Ready to secure your NIC savings and guarantee 100% compliance under the new Act?

Contact