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HMRC have suffered a reverse in the latest case concerning tronc payments, after a tribunal ruled that pools of tips shared among service industry employees do in fact count towards minimum wage payments.
Following a grievance raised by a group of high-profile catering companies, the Central London Employment Tribunal found that gratuities from discretionary service charges and credit card tips had been paid to workers by the businesses, albeit via a troncmaster's payroll.
The case related to payments of £3 top £4 per hour made to members of staff between 2000 and 2003, and HMRC claimed that the full national minimum wage entitlement was not received by workers — many of whom received enough money from troncs to push them into the higher-level tax bracket.
Peter Davies of Vantis, the accountancy firm that assisted the food companies with their case, hailed 'a victory for common sense' and said that HMRC's complaint had been 'a classic case of arguing form over substance to suggest that an employee earning enough to pay 40% tax had somehow not received their minimum wage and being exploited just because a tronc was in place'.
HMRC were last year forced to revise their stance on National Insurance and PAYE treatment of gratuities. As part of the revision, it was agreed that tips could be used to make up pay to national minimum wage levels. However, for this to work tips had to be paid through the employer's payroll. In this instance, they had been paid through a troncmaster's payroll. The tribunal ruled that this was still the employer's money and therefore part of the same payroll.
Peter Davies advises that 'businesses with separate tronc systems should strongly consider merging the two systems together', and where this is not possible a tronc will still count towards minimum wage earnings 'provided that it is funded by the proceeds of discretionary service charges and credit card tips (not cash tips), that the troncmaster is an employee of the business and required to operate the tronc as part of his duties of employment'.
In addition, the employer must keep a record to ensure that the total received by the employee is at least the national minimum wage.
