Tronc Calculator
Using a tronc system to distribute service charges can result in significant National Insurance (NI) savings for both employers and employees. In a properly administered tronc, tips and service charges are considered separate from wages and, under current UK tax rules, are not subject to Employer National Insurance Contributions. This means that for every £1,000 distributed via a tronc, an employer could save £150 in NI costs (as at April 2025). Over the course of a year, especially in hospitality businesses with high service charge income, these savings can add up.
Managing Gratuities
Cost Comparison via PAYE
Businesses can manage tips and service charges in several different ways, each with varying tax implications and administrative requirements. Here are the main approaches:
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Direct Tips from Customer to Employee
When a customer clearly intends a tip for a specific employee, it can be given directly-either in cash or through electronic platforms like mobile tipping apps. This method is commonly used in sectors like hairdressing and taxi services, and can also apply in hospitality settings where an individual delivers a personalised service (e.g. a barrister). These tips are the responsibility of the employee to declare for tax purposes and are not subject to employer National Insurance. -
Tips Pooled and Distributed via Payroll (Without Tronc)
When tips or service charges are collected by the business and redistributed through payroll without a tronc scheme, they are treated as standard earnings. As a result, they are subject to Income Tax, Employee NI, and Employer NI contributions (15%). This approach is simple to manage but can reduce take-home pay and increase costs for the employer. -
Tips Distributed Through a Tronc Scheme
A tronc system allows pooled tips or service charges to be distributed through the employer’s PAYE system but exempt from Employer National Insurance. This can result in significant savings for the business while also improving employee net earnings. For a tronc scheme to be compliant, it must be independently managed by a troncmaster, who is responsible for how the funds are allocated.
Businesses can either establish an in-house scheme that meets HMRC's strict criteria, or they can partner with a specialist provider like Troncmaster Solutions to ensure full compliance and transparency.
This calculator is designed to help employers and employees understand the financial impact of distributing service charges either through payroll or via a tronc system. By entering the amount of service charge, the tool illustrates how much the employee will take home after income tax and National Insurance deductions, and how much the employer will pay in additional costs such as Employer National Insurance contributions (where applicable).
Note: These calculations are only for illustrative purposes and are not a substitute for professional advice.
For employees, while they are still required to pay Income Tax, their liability for Employee NI may also be reduced depending on how the tronc is structured and administered. This can result in a higher take-home pay compared to receiving the same amount through standard payroll. By using a compliant tronc system, businesses can reduce overhead costs, improve staff earnings, and enhance recruitment and retention—all while remaining within legal HMRC guidelines. It’s a strategic way to make the most of service charge income for the benefit of both the business and its people.
What are Tips?
Tips are individual, personal contributions from customers to service staff, typically calculated as a percentage of the total bill. They serve as a direct appreciation of the service quality and are entirely voluntary. Tips can be handed directly to the staff or added to the bill at the customer's discretion.
What is Gratuity?
Gratuity is a broader term encompassing both tips and service charges. It refers to any form of monetary acknowledgment provided to service staff for their efforts. Gratuity is a way for customers to express their satisfaction with the service received, fostering a positive exchange between patrons and service providers.
What is a Service Charge?
Service charges are predetermined fees, often a percentage of the total bill, automatically added to the customer's check by the establishment. Unlike tips, service charges are non-negotiable and are intended to compensate staff for their services. However, it's crucial for patrons to check whether the service charge is included in the bill, as tipping practices may vary.
Tips vs. Service Charge: How They Differ
Tips, often used interchangeably with gratuities, are voluntary payments given directly to service staff by customers as a token of appreciation for excellent service. Service charges, on the other hand, are predetermined fees added to the bill by the establishment. While tips are discretionary and based on customer satisfaction, service charges are mandatory and may vary from place to place.
Troncmaster Solutions For Fair Tip Distribution
Troncmaster Solutions is dedicated to guaranteeing fair distribution of your employees' tips. Through our Tronc Scheme service, we meticulously calculate and allocate tips to be included in your team members' pay during each pay period. We provide transparent quotes with no hidden fees or long-term commitments - just a flexible 30-day rolling contract designed for your convenience.
Schedule a consultation with us today by clicking here.
