Tips paid by tronc DO NOT count towards minimum wage

HMRC has successfully challenged a ruling that staff can receive a basic pay rate below the minimum wage provided their hourly rate is at least equivalent to it by the time tips are counted and paid via a tronc system.

In this particular case heard by the Employment Appeal Tribunal, the employers (a combination of private member's clubs and restaurants) paid staff at a rate less than the national minimum wage, currently £5.52 per hour for staff over the age of 22. Tips left by customers were collected by the employers and given weekly to an employee designated as the tronc holder, who then distributed the tips to staff in accordance with practices agreed by the employees and the tronc holder. When tips were included in the employee's earnings the national minimum wage rate was reached or exceeded.

HMRC succeeded in its assertion that because the money was not in the possession of the employer at the time of allocation of that money, it could not be deemed to be a payment 'from the employer' and therefore could not be counted for minimum wage purposes. 

We strongly advise all employers who rely on tips distributed by tronc to achieve minimum wage rates to abondon the tronc system and instead bank tips and distribute these to employees via payroll.  Employers should go to great lengths to explain the reasons for this change to employees and tronc holders, as these changes are likely to be highly emotive for the employees, and clumsy handling of a change to the tronc system could give rise to employee relations issues and even breach of contract claims.