If you work in hospitality, how well do you know the rules on tips?
- Where the employer imposes a mandatory service charge to a bill and that is paid out to the employees, national insurance will be due regardless of the arrangements for sharing out the money.
- Tips given directly to employee
PAYE does not apply. Tax will be due but no national insurance. The employee receiving the tip advises HMRC of the tips received.
- Tips given to employee by the employer.
PAYE and employee’s national insurance must be deducted via the payroll. The employer will also pay employers NIC.
- Tips paid using the “Tronc System”
The tronc system is a special pay arrangement under which tips, gratuities and service charges are distributed to employees in the hospitality, leisure and hotel industry.
The tips and service charges are pooled and distributed to the staff by a third party – the Tronc Master. The employer can appoints someone.
The tips paid out to employees under the tronc system are treated as earnings. But it is the tronc master, not the employer, who is responsible for deducting tax under PAYE under the tronc scheme set up with HMRC. This tronc scheme is separate from the employer’s own PAYE scheme. Under the tronc system the payment of tips by the tronc master does not usually attract national insurance contributions.