Tronc systems in the UK hospitality sector: Understanding claims risks and legal support

The hospitality industry relies heavily on tronc systems to fairly distribute tips and service charges among staff.

However, issues arising from tronc arrangements can expose employers to potential claims, particularly regarding unfair distribution, National Minimum Wage (NMW) compliance, unauthorised deductions from wages and constructive unfair dismissal.

This article outlines the key HR and legal risks associated with tronc systems, how we can assist with ACAS early conciliation, and how we can support businesses in defending employment tribunal claims.

The claims risks associated with tronc systems

A tronc system is a common method for distributing tips and service charges through an independent troncmaster, ensuring payments are fair and tax-efficient. However, if not properly managed, tronc schemes can lead to legal disputes. The main risks include:

Non-Compliance with the National Minimum Wage (NMW)

Employers cannot count tronc payments towards NMW compliance, even if the money is paid by the employer.

If an employee’s base pay falls below the NMW after deductions, this could result in claims and HMRC investigations.

Unfair or discriminatory distribution of tips

If a tronc system is seen as unfair, inconsistent or discriminatory, employees may bring claims for unlawful deduction of wages, breach of contract or discrimination under the Equality Act 2010 or the Employment (Allocation of Tips) Act 2023.

Lack of transparency and consultation

Under the Employment (Allocation of Tips) Act 2023, hospitality employers must:

• Fairly distribute tips without employer deductions.
• Provide transparency in tronc arrangements.
• Keep records of tips distribution for three years.

Failure to comply could lead to grievances, tribunal claims and reputational damage.

Constructive unfair dismissal

A troncmaster should be genuinely independent, with the employer making no decisions about the allocation.

In the case of employees, failure to apply the tronc system fairly and transparently and in line with the rules can lead to grievances, requiring large amounts of management time to resolve.

Holiday pay

Even with an independent and compliant tronc system in place, recent case law from the Employment Tribunal suggests that tips and gratuities paid via a tronc system will count towards a worker’s earnings (as defined by the Employment Rights Act 1996) if they are paid by the employer

As such, amounts received in this way must be included in the calculation of a workers’ holiday pay to reduce the risk of holiday pay claims. This has no impact on whether or not the tronc payments meet the conditions for exemption from National Insurance Contributions.

Equal Pay and discrimination

Male and female employees are entitled to equal pay for like work, work rated as equivalent via a job evaluation scheme or work of equal value unless there is a genuine material factor justifying the difference. They are also entitled not to be discriminated against on the basis of their sex in respect of their terms and conditions.

If, any element of an employer’s administration of a tronc system has a disproportionately negative impact on one gender as opposed to another, this may lead to workers claiming that the way the system is applied is indirectly discriminatory, shifting the legal burden to the employer to objectively justify any criteria it applies.

Legal assistance to solve tronc disputes

Whilst prevention is always better than cure and getting your tronc system right is fundamental in reducing claims risks, there will always be occasions when disputes arise.

Settlement Agreements

If you wish to settle tronc related issues, whether this be because you have made an error or because you would prefer to avoid the time, cost and stress of an ongoing dispute, settlement agreements can be a valuable tool, resolving the issue between the parties and preventing the employee or worker from escalating the matter and bringing a tribunal claim.

We can guide you through holding settlement conversations with your employees and workers safely and effectively, draft relevant communications and draft and negotiate settlement agreements.  The settlement agreements we draft will resolve your dispute, meet your commercial objectives and protect you from future claims.

ACAS Early Conciliation

If an employee or worker wishes to escalate matters beyond seeking informal resolution of tronc issues with their employer and assuming that the matter is not resolved via a settlement agreement, they may choose to notify ACAS that they intend to file a claim.

Would-be Claimants must follow this process if they wish to bring a Tribunal claim.  This triggers an Early Conciliation process, where ACAS acts as an independent conciliator to see if it is possible to settle the dispute without a tribunal claim and provides a valuable opportunity for hospitality employers to either set out their arguments robustly in the hope of deterring claims or seek to settle the matter to avoid the time, cost and stress of protracted litigation.

Our employment law experts can assist hospitality businesses by:

• Assessing the merit of claims and identifying any compliance issues.
• If you do not wish to settle, putting your case to ACAS on your behalf in the strongest possible way to deter litigation and put you in a good position to apply for costs if you successfully defend the claim.
• If you wish to settle, engaging in early settlement discussions with ACAS on your behalf to avoid costly litigation.
• Ensuring legally compliant ACAS settlement agreements, reducing financial exposure and protecting you from claims.
• Providing strategic advice to prevent repeat claims and improve tronc policies.

Resolving disputes at this stage can save time, costs, stress and reputational risk for hospitality businesses of disputes progressing to a tribunal claim.

With an increasing number of Tronc-related disputes progressing to the ACAS stage, tribunal claims are certainly a heightened risk.

How we can help with defending Employment Tribunal Claims

If a claim proceeds to an employment tribunal, we provide expert representation, including:

• Drafting a robust response (ET3 form) to defend the claim.
• Gathering evidence on tronc distribution, fairness and compliance and advising you of the merits of your defence and your options and risks.
• Dealing with disclosure and compiling the key documents the tribunal will need to see to make its decision.
• Drafting witness statements.
• Representing you at preliminary hearings and full tribunal hearings, instructing Barristers as appropriate.
• Mitigating financial risks by negotiating settlements where appropriate.

How we can support your business

We provide expert legal support tailored to the UK hospitality sector.

If you have a tronc-related dispute which has escalated to ACAS or a Tribunal or you are considering settling to avoid the matter escalating to that stage, please get in touch.

Disclaimer: This article provides general guidance and does not constitute legal advice. For tailored advice, please contact us.