FINANCE
Upcoming changes to the allocation of tips for hospitality businesses
THE GOVERNMENT HAS BEEN PROGRESSING THE EMPLOYMENT ( ALLOCATION OF TIPS ) BILL , WITH IT RECEIVING OVERWHELMING SUPPORT FROM BOTH HOUSES IN WESTMINSTER . AS OF 15 DECEMBER 2023 , THE DRAFT CODE OF PRACTICE HAS BEEN RELEASED . IT IS AVAILABLE FOR PUBLIC VIEWING , WITH THE CONSULTATION PHASE HAVING CLOSED ON 22 FEBRUARY 2024 .
BY ADAM LACCHIN , TAX PARTNER AT AZETS , adam . lacchin @ azets . co . uk
What do hospitality businesses need to consider ahead of the introduction ? The new tips legislation will come into effect on 1 July 2024 , so employers are advised to have considered the code and whether their current distribution of tips meet the requirements of the new legislation . Employers whose employees receive tips via a Tronc Scheme ( see below ) should ensure the scheme also meets the new legislative requirements .
The draft code requires employers to :
1 . Pass on all tips and service charges to workers without deductions - except in very limited scenarios , such as deduction of income tax .
2 . Ensure that tips are distributed in a fair and transparent manner when the employer takes control or exerts significant influence on their distribution .
3 . Have regard for this code of practice when they are distributing or influencing the distribution of tips . The code dictates that there needs to be transparency and fairness .
4 . Maintain a written policy on how tips are dealt with at their place of business and ensure this policy is made available to all their workers .
5 . Maintain a record of all tips paid at their place of business , and their allocation and distribution between each worker - to which workers have the right to request access .
What is a Tronc Scheme ? Tronc Schemes are a mechanism used for the distribution of discretionary tips , gratuities and service charges . A Tronc Scheme should be operated by a ‘ Tronc Master ’ who may be an individual within the business , or a third party or organisation who should act independently of the business / employer in determining how the pool of tips is to be distributed amongst staff .
We are increasingly seeing the hospitality sector engage with third parties to act as Tronc Master and operate an independent scheme on behalf of employers . Businesses who engage with a third party should ensure the third party is aware of the new legislation and a strategy for implementing the changes required , from 1 July 2024 , should be agreed .
The use of a Tronc Scheme is beneficial for employers and employees due to the National Insurance Contribution ( NIC ) relief that is available . In simplistic terms , PAYE tax is due , however there is a relief from NIC . In comparison , if a Tronc is not used , and tips are being passed to the employees , then the payment will only be exempt from NIC if it meets either of the following two conditions :
• It is not paid , directly or indirectly , to the employee by the employer and does not comprise or represent monies previously paid to the employer , for example by customers .
• It is not allocated , directly or indirectly , to the employee by the employer .
The code of practice is still in draft and we await any updates that may come out of the consultation , but it ’ s clear that many of the proposed requirements will remain . We recommend that all employers , whose employees receive tips and gratuities , should ensure they are prepared for the changes once confirmed .
We are here to help If you would like to know more about the changes and how they may impact your business , or you would like to discuss Tronc Schemes , please get in touch .
Local Offices : Ashford : 01233 629 255 Canterbury : 01227 454 861 Maidstone : 01622 690 666 Orpington : 01689 827 505 Sandwich : 01304 249 997
www . azets . co . uk
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