Tips are one of the biggest benefits of working in the hospitality sector but historically they have not always been distributed fairly.
Legislation that came into force last week will mean that all tips will need to be given to employees monthly.
It has been welcomed with open arms by many, but it will also have an impact on a system widely used to pool staff tips that most people outside of the hospitality industry will probably never have heard of: Tronc
The tronc system is a separate fund for tips and service charges and it has traditionally been used to supplement staff wages, especially during quieter periods.
More change: New rules mean hospitality staff will receive 100% of their tips from customers
The new rules mean that by law staff must be paid 100 per cent of all money paid through tipping.
The Employment (Allocation of Tips) Act and statutory Code of Practice require employers to ‘pass all tips, gratuities, and service charges on to workers, without deductions’.
The code of practice says: ‘The Tipping Act states that employers must ensure that all tips are distributed to staff, at the latest, by the end of the month following the month in which the tips are paid by customers.’
If an employer breaks the law and retains tips, a worker can bring a claim to an employment tribunal.
The new measures apply to all sectors in England, Scotland and Wales but not Northern Ireland, where employment policy is devolved and similar rules are being consulted on.
But what does this mean for employee earnings and what is tronc and how will it be affected, we explain below.
What is tronc – and what happens to tips?
Tronc is a system that operates in hospitality to pool and distribute tips among staff.
It is usually used to keep back some tips to smooth out earnings over the year and also reward staff who work year-round, not just during peak seasons, and those that work in roles that may not often be tipped.
It has helped to supplement the wages of salaried employees, as well as those on lower hourly wages.
If you leave a cash tip on the night, on top of any added charge to your bill, often restaurants will give it to the waiter or waitress that evening.
However, the service charge usually paid by card will go into the tronc at many venues.
Crucially, the tronc is kept and held separately from the restaurant’s revenue and staff would, generally, get a share of it.
Often a staff member or a third-party company will manage it as the ‘tronc master’ and distribute the cash among employees.
Declining cash usage means that troncs have become more commonplace in the industry. With that, their use has changed with some employees opting to use them not just to pay out tips, but also to cover staff parties, breakages and to pay a third-party tronc master.
Tronc: How will businesses manage in quiet months?
One of the most common uses of tronc has been to smooth out notoriously sporadic hospitality earnings.
In busier periods, such as over Christmas, tronc is filled up and some is then distributed during the subsequent quieter months to subsidise the wages of those working.
Generally, hospitality wages are made up of a salary or hourly rate and a bit of tronc.
As hospitality struggled during the pandemic, more businesses added a discretionary service charge to bills meaning thousands of pounds generated for tronc.
Some businesses also offered ‘guaranteed tronc’, usually for salaried staff, while hourly staff’s share of the tronc works on a points-based system.
However, some in the industry think that the system was open to abuse.
Dan Hawkie, chief commercial officer of tronc master TipJar, said: ‘There were obviously operators that were taking a lot more from the tronc fund was needed and probably more than what the customer expected.
‘A normal customer is expecting a service charge or tip to be going to the team members not the business accounts.
‘Operators were able to do what they wanted to do because it was unregulated, that’s why there’s been a need to put this whole legislation in place.’
Service charge: Tronc usually comes from added charges to bills and distributed between staff
The new tipping rules are expected to level the playing field but they are also likely to affect some businesses operating tronc.
Tips now have to be paid within the next calendar month, meaning businesses can no longer sit on service charges that help to tide them over the quieter periods.
Hawkie says: ‘That’s one of the big contentious subjects. However, if I’d received a cash tip 10 or 15 years ago, I wouldn’t expect it to go to the business for it to hold onto for two or three months. If you earned a cash tip back in the day, you were probably taking that home at the end of the shift.
‘Smoothing over the quieter periods is one of those areas businesses are worried about but ultimately that’s where financial wellbeing can be put in place to support education and say “You will receive bumper pay packets in our busy months but please don’t spend it all”.’
However, that kind of money management doesn’t come easily to many and it won’t be much comfort to the staff on minimum wage who rely on tips to supplement earnings consistently throughout the year.
The new rules could also dent the retention of staff during quieter periods, meaning there will be a drop-off in staff levels during January and February, before it picks up during summer and Christmas again.
‘Winners and losers’ under new tipping legislation
There are plenty of ways to operate a hospitality business and that also goes for how tips are distributed among staff.
This makes any legislation that imposes a blanket rule across an entire sector difficult to impose.
The new rules state that all tips must be handed over and specify a timeframe but they do not look at how they should be distributed.
This leaves lots of questions unanswered: Should only front of house staff get tips? Should the be guaranteed for kitchen staff? How should tips be shared between waiting staff, chefs, kitchen porters etc?
Kate Nicholls, chief executive of trade body UKHospitality, said the changes will ‘formalise what is already commonplace in the sector as businesses have been preparing for this legislation for a number of years.’
While this might be the case for bigger businesses, smaller businesses might struggle with how to adopt the changes for tronc.
While Hawkie anticipates the new rules will not impact some operators, there are a ‘substantial amount… that will have to do something very different’.
Unhelpfully, the new rules make only brief mention of tronc, saying employers opting for an independent tronc operator must adopt a framework ‘in line with principles of fairness’.
Guaranteed tronc schemes won’t be outlawed by the new legislation but Hawkie says they are likely to be frowned upon.
‘You’ve had operators in the past that might have paid a £35,000 salary to a manager and guaranteed £35,000 worth of tronc.
‘They won’t really be able to do that anymore because another team member would see the manager earning much more. Under the transparency aspect of the new legislation that will obviously cause some conflict’.
Could the new rules see prices increase?
TipJar says they have seen more businesses ditching a guaranteed tronc and assessing how they might have to remodel their finances.
That could even see a reduction or complete removal of the standard service charge and an increase in prices, with all other tips going straight to staff.
TipJar said: ‘Operators doing it well in the past will probably be better off. They won’t need to raise their prices as much, they may not need to increase their wages either because their teams are still going to benefit from the full 100 per cent tronc being paid out on a month by month basis.’
A removal of the service charge could also affect non-customer facing roles, such as chefs and kitchen porters, who may have previously had a share of the tronc.
Where a company has reserved funds and put them into the business, there could be an opportunity here for the money to be redistributed.
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