Where will your tips go now – and what is tronc? Winners and losers of the new tipping law

Tips are one of the biggest benefits of working in the hospitality industry, but in the past they have not always been distributed fairly.

The rules, which came into force last week, will mean all tips will have to be paid to workers every month.

This has been welcomed by many with open arms, but it will also impact a system commonly used to collect staff tips that most people outside the hospitality industry have probably never heard of: Tronc

The tronc system is a separate tip and service fee fund traditionally used to supplement employee wages, especially during quieter periods.

The new rules mean that by law employees must receive 100% of all money paid in tips.

The Employment (Allocation of Gratuities) Act and the Statutory Code of Practice require employers to “remit all gratuities, gratuities and service charges to employees without any deduction.”

The Code of Practice states: “The Tipping Act states that employers must ensure that all tips are remitted to employees by the end of the month following the month in which customers pay tips at the latest.”

If the employer breaks the law and retains tips, the employee may file a lawsuit in the labor court.

The new measures apply to all sectors in England, Scotland and Wales, but not in Northern Ireland, where employment policies are devolved and consultations are underway on similar policies.

But what this means for workers’ earnings, what tronc is and how it will be affected, we explain below.

What is tronc and what happens to tips?

Tronc is a system operating in the hotel and catering industry, whose task is to collect and distribute tips among staff.

It is typically used to retain some tip money to even out earnings throughout the year, as well as to reward employees who work year-round, not just during peak seasons, and those who work in non-tipped jobs.

It helped supplement the salaries of salaried workers, as well as those with lower hourly wages.

If you leave a cash tip in the evening, in addition to adding to the bill, restaurants will often give it to the waiter or waitress that evening.

However, a service fee, usually paid by card, will be charged to your tronc account in many places.

Most importantly, tronc is kept separate from restaurant revenues, and employees typically receive a cut of it.

Often, an employee or external company will manage it as a “tronc master” and distribute the cash among employees.

The declining use of cash means that thrones are becoming more common in the industry. As a result, their use has changed – some employees have chosen to use them not only to pay tips, but also to cover staff parties, breaks and pay an external tronc master.

Tronc: How will companies cope in the quiet months?

One of the most common uses of tronc is to smooth out notoriously sporadic hospitality earnings.

During busier times, such as Christmas, the tronc is filled and some is then donated in the following, quieter months to subsidize the wages of working people.

Generally speaking, compensation in the hospitality industry consists of a salary or hourly rate and a bit of tronc.

As hospitality struggled during the pandemic, more and more businesses added a discretionary service charge to their bills, which meant thousands of pounds were generated for tronc.

Some companies also offered a “guaranteed tronc”, usually for salaried employees, while the employee’s hourly portion of tronc was based on a points system.

However, some industry representatives believed that the system was susceptible to abuse.

Dan Hawkie, commercial director of tronc master TipJar, said: “Clearly there were operators who took far more from the tronc fund than was needed and probably more than the customer expected.

“The average customer expects a service charge or tip to go to team members, not company accounts.

“Operators could do whatever they wanted because it wasn’t regulated, so there was a need to enforce all this legislation.”

The new tipping rules are expected to level the playing field, but are also likely to impact some tronc businesses.

Tips must now be paid in the next calendar month, meaning businesses can no longer pay fees for services that will help them get through quieter periods.

Hawkie says: “This is one of the main controversial topics. However, if I received a cash tip 10 or 15 years ago, I wouldn’t expect it to go to the company and hang around for two or three months. If you earned a tip one day, you probably took it home at the end of your shift.

“Smoothing out the quieter periods is one of those areas that businesses worry about, but ultimately that’s where you can put yourself in a good financial position to support education and say, ‘You’ll get your pay packages in our busy months, but please don’t spend it all.’ “

However, this way of managing money doesn’t come easily to many people, and it won’t be very convenient for minimum wage workers who rely on tips to supplement their earnings regularly throughout the year.

The new rules could also make it more difficult to retain staff during quieter periods, meaning staffing levels will drop in January and February before rising again over the summer and Christmas period.

‘Winners and losers’ under new tipping legislation

There are many ways to run a hotel business, and that includes how tips are distributed to staff.

This makes any legislation imposing a general rule across the sector difficult to impose.

The new rules state that all tips must be remitted and set a time frame, but do not regulate how they are distributed.

This leaves many questions unanswered: Should only front desk staff receive guidance? Should this be guaranteed to kitchen staff? How should tips be shared between waiters, chefs, kitchen porters, etc.?

Kate Nicholls, chief executive of trade body UKHospitality, said the changes “formalize what is already commonplace in the industry as businesses have been preparing for these regulations for many years”.

While this may be the case for larger companies, smaller companies may have difficulty adopting changes to tronc.

While Hawkie predicts some operators will not be affected by the new rules, there are “a significant number… of people who will have to do something very different.”

Unfortunately, the new regulations make only a brief mention of tronc, stating that employers choosing an independent tronc operator must adopt a framework that is “consistent with the principles of integrity.”

The new rules will not ban guaranteed tronc schemes, but Hawkie says they will likely be met with hostility.

“In the past you had operators who could pay a manager a salary of £35,000 and guarantee tronc worth £35,000.

“They won’t be able to do that anymore because another team member would see that the manager is earning much more. In terms of the transparency of the new legislation, this will obviously create conflict.”

Could the new rules cause prices to increase?

TipJar says it has seen more companies opting out of guaranteed tronc and assessing how they will need to rebuild their finances.

This could even result in the standard service charge being reduced or removed altogether and prices increasing, with all other tips going directly to the staff.

TipJar stated: “Operators that have performed well in the past are likely to be in a better position. They won’t have to raise prices as much, and they may not have to raise salaries either, as their teams will still benefit from being paid the full 100% tronc every month.

Removing the service charge could also impact non-customer roles, such as chefs and kitchen assistants, who may have previously held a stake in tronc.

If the company has reserved funds and implemented them in its operations, there may be a chance to redistribute them.