How to set up a tipping system for your staff

Why is a clear tipping policy so important?

A well-managed tipping system keeps your team happy and motivated. It shows you value their hard work and can be a big factor in attracting and retaining the best staff. More importantly, with new laws coming into effect, having a formal, fair, and transparent process is a legal requirement.

Your main options for handling tips

There are three common approaches to managing tips in the UK. Consider which best suits your business size and style.

1. Staff collect and keep their own tips: This is the simplest method, typically used for cash tips. The staff member who serves the customer keeps the tip. However, it can cause fairness issues within the team (e.g., kitchen staff miss out) and doesn't work well for card tips.
2. The business collects and distributes all tips: In this model, all tips (cash and card) are pooled. The business then distributes them to staff. By law, you must pass on 100% of tips without any deductions, other than those required by HMRC for tax. Tips handled this way are subject to National Insurance contributions.
3. Set up a Tronc system: This is a special arrangement for organising and distributing tips. An independent person, called a 'troncmaster' (who can be a staff member, like a manager), is responsible for pooling and sharing out the tips. The huge advantage of a properly run tronc is that the tips are exempt from National Insurance contributions for both the employee and the employer, saving everyone money.

How to set up your tipping system

Follow these steps to create a robust system:

1. Choose your model: Decide if a simple pool or a more formal tronc system is right for you. For businesses where most tips are paid by card, a tronc is usually the most efficient choice.
2. Create a written tipping policy: Document exactly how your system works. Your policy should state how tips are collected, who is eligible to receive them, and the formula for distribution (e.g., is it split equally, based on hours worked, or a points system for different roles?).
3. Appoint a Troncmaster (if using a tronc): Choose a responsible person to manage the tronc. They must be able to act independently when deciding how tips are allocated based on the agreed policy.
4. Communicate the policy to all staff: Hold a meeting to explain the system to your team. Give every employee a copy of the written policy and be open to answering their questions. Fairness and transparency are essential for building trust.

Top Tip: The Employment (Allocation of Tips) Act 2023 will soon make it a legal requirement for employers to pass on all tips to workers without deductions and to have a clear, written policy. Getting this right now puts you ahead of the curve and establishes good practice from day one.