The November 2024 Budget brought significant changes that have left many hospitality employers grappling with new costs and worrying about the future.
The rise in Employers’ National Insurance Contribution (NIC) from 13.8% to 15% is further compounded by a reduction in the threshold to £5,000, at which point this kicks in.
This is a double hit for hospitality businesses. Many already operate on tight margins, and these changes will increase payroll costs significantly. Managing cash flow and retaining staff in such a competitive industry will be even harder.
How tronc schemes can help
There’s a silver lining for businesses using tronc schemes. Tronc schemes handle tips and service charges, distributing them fairly among employees. The key benefit is that employers do not have to pay NIC on tronc payments, provided the tips are managed independently by a Troncmaster. With the increase in Employers’ NIC, this saving becomes even more significant.
The true cost of a managed tronc scheme
The stringent requirements for a Troncmaster, often result in hospitality businesses turning to third-party providers to set up and manage their tronc scheme. Traditionally, these providers charge a percentage of the tips pool value – typically between 3 and 5%.
Before the Allocation of Tips legislation came into law in October 2024, this fee was often taken out of the tips pool before it was distributed to staff. This made tronc schemes highly cost-effective for employers, as they not only saved the 13.8% NI but also made the cost of running the scheme cost-neutral.
The new legislation stops this practice. Its fundamental premise is that 100% of the tips must be fairly distributed to staff, so no deductions of any type can be made from the tips.
The savings on NI are still significant, but it is important to ensure that any existing tronc schemes, where fees are taken out of the pool, are not still running in the same way, as this will break the new law.
It is also important to check on the fee structure with any third-party tronc provider:
- Watch out for sneaky setup fees. We have heard of providers charging £ 1000 to set up the scheme. Ensure you know what you will be charged for this process.
- Depending on the value of the tips pool, a fixed percentage can soon rack up, especially during the busiest times of the year, such as the run-up to Christmas. When this came out of the tip pot, it was less visible to employers, but now it will be a direct cost, which could become very painful.
A fair approach to tronc fees
Just as the new legislation is built on the concept of fairness, at Ascend, we wanted to build our managed Troncmaster service around the same concept.
- We won’t charge set-up fees for onboarding an existing tronc scheme
- If we are helping you set up a new scheme or reviewing your current scheme in light of the new Tips Allocation legislation, we will charge a sensible consultation fee based on the complexity of the scheme.
- We have a flexible approach to ongoing management fees, which reflects the amount of work needed to act as your Troncmaster and administer the scheme, rather than just applying a standard flat percentage fee for all tronc clients.
Why it matters now more than ever
Increased NIC costs make an effective Tronc scheme crucial. But overpaying for Tronc management eats into the savings you should be enjoying. Ascend’s goal is simple: provide a cost-efficient solution that benefits both you and your employees.
Get in Touch
Don’t let rising payroll costs burden your business. Contact us at Ascend to set up a cost-effective Tronc scheme that works for you – without breaking the bank.
Save money. Stay compliant. Support your staff.
