In the latest instalment of the troncs saga, an employment tribunal has ruled that tips paid to employees count towards the minimum wage. To update readers, tax specialist Peter Davies gives 10 tips on how to deal with the issue.
- Ignore the jargon and the obscure language: a tronc is simply a system for dividing up and sharing out tips and it is run by a troncmaster. (And yes, even if that person is female they are still a troncmaster.) The aim of a tronc is to protect your business from any demands for income tax and to ensure that neither the owner, nor you, nor your staff, pay National Insurance on the tips.
- Tips are amounts left in excess of the bill on card and cheque sales, discretionary service charges, and cash tips given directly to staff or left on the table. The first two types of tips should be dealt with through a tronc and cash tips should be left to staff to sort out steer well clear.
- Yes, it¹s easier just to have cash tipping. But your staff will receive less money this way, as these days many customers carry little cash and will expect to pay with plastic.
- "Cash tips are tax-free" is just a myth. All tips are subject to income tax. They are only tax-free if you fail to tell the taxman about them, and if a member of staff chooses that option, on their own head be it.
- Discretionary service and card tips belong, in law, to you, the business owner. Yes, you could keep them all but you would have major staff retention issues that way. Keeping a proportion to cover your costs and administration is perfectly normal, and most businesses keep about five per cent to cover this.
- Choose your most reliable and trustworthy member of staff to be the troncmaster. It¹s their job to decide who gets what. The proprietor, partner, or company director cannot be the troncmaster.
- If the troncmaster isn¹t sure what to do, the owner can offer suggestions and advice, but cannot order them to share the money out in a particular way. The decision has to be (and be seen to be) the troncmaster¹s.
- A simple system might be to divide the available money equally among those people who worked on a particular day or shift. If you are a large pub with a high level of tips, your troncmaster might want to use a points or performance-based system to act as an incentive system.
- Do not actually give the money to your troncmaster. Tell them in writing how much they have to share out, and get their instructions in writing. You will pay the tips to staff through the payroll along with their wages.
- Don¹t forget, these are tips not wages. They are an extra. So you cannot guarantee or promise someone how much they will get, and you must not mention any amounts of tips in your contracts of employment, offer letters or verbal discussions.
So what¹s to be gained from this? Without a proper tronc the taxman gets nearly 24p in every pound in National Insurance and half of that comes from the employer, not their staff. Get it wrong and it¹s you who the tax inspector will chase, not your staff.
So for financial reasons, as well as peace of mind, there¹s no reason why you shouldn¹t get the right advice and start today. n
€ Peter Davies is a partner at accountants Vantis. For more information, please call 020 7417 0417 or email peter.davies@vantisplc.com