12 Aug 2025
Seasonality and business – How do businesses payroll tips and gratuities?
The unusually warm weather has ushered in a summer like no other.
Summer brings with it the need for seasonal workers for many businesses, but they bring with them their own payroll challenges.
One of the biggest factors likely to impact payrolling seasonal workers is how you handle tips and gratuities.
As this is the first summer since the Employment (Allocation of Tips) Act 2023 was enforced, you may not yet be aware of the changes to legislation.
If your business is set to make the most of the summer, you must stay aware of how to handle tips so that you do not risk becoming noncompliant.
What are the main payroll concerns for seasonal workers?
As with all of your other employees, it is your legal obligation to ensure that seasonal workers are receiving the correct pay to which they are legally entitled.
All seasonal workers must receive at least the National Living Wage (NLW) or the National Minimum Wage (NMW), depending on their age.
The current rates are:
- £12.21 for people aged 21 and over
- £10 for people aged 18 to 20
- £7.55 for people aged under 18
- £7.55 is the apprentice rate
So, we want to look at the less understood aspect of seasonal workers, which is the handling of tips and gratuities.
What are the rules around paying tips to your employees?
As a rule, tips belong entirely to the employees who earn them.
Staff are entitled to 100 per cent of any gratuities left for them, but things get trickier when you need to decide exactly who deserves which tips.
If a guest loves both the meal and the service, do you award the entire tip to the server who took their order or should cooks, bussers and kitchen staff share too, since their efforts helped create that great experience?
To avoid any potential conflict, you should create a clear, written tipping policy that spells out how gratuities are split across all roles, even those behind the scenes.
By law, you cannot deduct from tips: they’re your employees’ rightful earnings.
However, you can set criteria for who qualifies and how much they receive.
Common approaches include either a points-based system or a percentage split.
With a point based system, each hour worked converts into points, and tips are divided in proportion to total points.
Meanwhile, using a percentage system means that you allocate tips based on staff members’ level of customer interaction.
Either method can work and it all depends on what you believe is fairer for your team.
Whichever scheme you use, it may be easier to pool all of the tips acquired and then distribute them fairly.
When this happens, you will need to understand the newly established tronc scheme.
What is a tronc, and who is the troncmaster?
A tronc is a form of tip jar wherein the tips, service charges, and gratuities are pooled before being allocated by the designated troncmaster.
Only the troncmaster may allocate the pot, keep the records, and ensure payouts run through payroll.
You should be aware that the scheme itself operates outside standard payroll processes.
Each site needs just one troncmaster so you should choose someone organised and detail-oriented, and name them in your written tipping policy.
Every employee will need to sign a contract acknowledging how tips are shared.
This can be part of their contracts or a separate statement that ensures there is no hidden information.
Try to keep the conversation open and conduct regular reviews of the policy.
Utilise staff feedback to find out if the current way of operating is befitting all involved or if things need tweaking to boost morale.
Remember, all tips must be tracked and paid through payroll.
How to stay compliant when reporting tips
In the UK, tips can’t replace wages, and you still need to pay at least the National Minimum or Living Wage.
Gratuities count as taxable income, subject to Income Tax and National Insurance. They’re also treated differently than tips for VAT purposes.
Service charges are standard-rated for VAT, since the business exerts control over them.
Voluntary tips lie outside VAT, but you must clearly mark them as optional on receipts.
Ensure every team member understands the tipping policy, knows who the troncmaster is, and feels able to raise any concerns.
Gratuities are a powerful way to reward your staff’s hard work and leave customers with a memorable impression.
Our team is on hand to help you navigate any payroll challenges that you may face when handling seasonal workers.
We can also give you expert advice on managing the payroll for your regular staff too!
Don’t risk noncompliance spoiling your summer. Speak to our team today!
Neil Manuel