Tronc schemes are a well-established way for hospitality businesses to distribute tips and service charges to their teams. When they’re set up correctly, they’re efficient, compliant, and genuinely better for employees’ take-home pay. But they do introduce a layer of complexity to payroll – particularly when it comes to calculating statutory payments.
Holiday pay, pensions, maternity pay, and student loan deductions all interact with tronc income in different ways. And the rules aren’t always intuitive. And, if you get them wrong, and you’re either underpaying your employees or overcalculating costs you don’t need to bear.
So let’s break down each of these areas.
Holiday pay and tronc schemes
This is probably the most talked-about area right now, largely because of the Big Table tribunal case, which involved restaurant brands including Bella Italia and Café Rouge.
The tribunal ruled that tronc payments should be included in the holiday pay calculations for Big Table employees. The reason came down to the fact that their contracts of employment specifically referenced the tronc scheme as part of their remuneration. Under the Working Time Regulations 1998, employees are entitled
to receive their “normal remuneration” during annual leave, and because the contract made tronc payments contractual, they met that definition.
So, if your employment contracts reference tronc schemes or payments, you may be required to factor those payments into holiday pay calculations. That means reviewing historical calculations, updating payroll processes, and potentially facing back-pay claims.
The straightforward way to avoid this is not to include tronc arrangements in employment contracts at all. The tronc scheme should be governed by a separate written agreement between the Troncmaster and employees, entirely distinct from the contract of employment. Our colleagues at Tips and Troncs go into the details of the Big Table case and what it means for operators, worth a read if you haven’t already.
Pension contributions on tronc payments
The starting point here is that pension contributions are calculated on “qualifying earnings”, which means pay that comes from employment. Properly structured tronc payments don’t meet that definition.
When a tronc scheme is run by a genuinely independent Troncmaster who has full control over how tips are allocated, the money never truly belonged to the employer. It came from customers, went into the tronc pool, and was distributed to employees without the employer having any say in how it was divided. Because the payments don’t originate from employment, they fall outside the auto-enrolment qualifying earnings calculation. No employer contribution is required on tronc payments, and n
The caveat, as always, is that the scheme has to be properly structured. If the employer is making decisions about who gets what, it isn’t a compliant tronc arrangement, and HMRC or The Pensions Regulator may treat the payments as wages. You also need to notify The Pensions Regulator if your tronc runs through a standalone PAYE scheme. Tips and Troncs explains the pension rules in full here.
Maternity pay and tronc schemes
Statutory Maternity Pay is calculated based on average weekly earnings during a specific reference period. The earnings that count are those subject to Class 1 National Insurance contributions, and this is set out in both the Social Security Contributions and Benefits Act 1992 and the Statutory Maternity Pay (General) Regulations 1986.
Because tronc payments from a properly administered scheme are exempt from Class 1 NIC, they are not included in the average weekly earnings calculation for SMP. The same logic applies here as it does for pensions: tronc payments are not payments from employment in the usual sense, so they sit outside the NIC rules.
Practically speaking, SMP is calculated on an employee’s regular wages only. If those wages fall below the lower earnings limit, the employee may not qualify for SMP at all and tronc income won’t rescue that calculation.
The position changes if tips are distributed without a tronc scheme, with the employer controlling the split. In that case, the payments are treated as wages, Class 1 NIC applies, and they’re included in the SMP calculation. Tips and Troncs has a useful breakdown of how the SMP rules work if you would like to go
deeper into the legislation.
Student loan deductions and tronc schemes
Student loan repayments follow the same earnings rules as National Insurance contributions. If a payment is exempt from NIC, it’s also exempt from student loan deductions.
For compliant tronc payments, the NIC exemption applies, so student loan deductions don’t apply either. Employees with outstanding student loans keep more of their tronc income as a result.
The rules differ for other types of tip payments. Where an employer is involved in distributing tips without a tronc scheme, those payments are treated as earnings, NIC applies, and student loans are deducted. Mandatory service charges always attract NIC regardless of how they’re distributed, so student loan deductions apply there, too.
For the many students working in hospitality who are managing loan repayments on a modest base wage, the difference this makes to their monthly take-home can be significant. Tips and Troncs covers student loans and troncs in detail here.
The NIC principle that runs through everything
It’s worth stepping back to notice that pensions, maternity pay, and student loans all follow the same underlying logic – each calculation is anchored to earnings that attract Class 1 National Insurance contributions. Tronc payments from a properly run scheme are NIC-exempt, so they fall outside all three.
Holiday pay is the exception. That’s determined by what counts as “normal remuneration” under the Working Time Regulations, which is a separate question, and one where the wording of employment contracts matters enormously.
Getting it right
Running tronc and payroll together is something Ascend Payroll does every day, working alongside our sister company Tips and Troncs. Between us, we handle the Troncmaster function, the payroll processing, and the compliance that underpins both, so hospitality employers don’t have to piece it together themselves.
If you’re running a tronc scheme and you’re not entirely sure how it interacts with your statutory payment obligations, it’s worth a conversation. Contact the Ascend team, and we’ll talk you through it.
