Buddy says:  No, it is not possible for tips distributed from a tronc system to be counted toward making up national minimum wage (NMW).  The NMW legislation states that all money payments paid by the employer to the worker should be taken into account when calculating whether the NMW has been paid.  However, the legislation goes on to state that any money payment made by the employer to the worker representing amounts paid by customers by way of a service charge, tip, gratuity or cover charge that is not paid through the payroll should be excluded from the calculation.  As the tips paid through a tronc system are not paid through the payroll, this means that they are not part of the calculation for NMW.

Employer information:  The recent case of The Commissioners for Her Majesty's Revenue and Customs v (1) Annabels (Berkeley Square) Limited (2) George (Mount Street) Limited (3) Harry's Bar Limited considered this issue.  Here, the employers had a tronc system in order to distribute tips to their respective waiters and bar staff as tips were usually paid by credit cards directly into the employers' bank accounts.  At the end of each week the employers would pay an amount equivalent to the total tips into bank accounts held by the senior managers of the employers who were responsible for operating the tronc (troncmasters), any cash tips were also given directly to the troncmasters.

The tronc monies were then distributed to the participating workers after income tax via PAYE had been deducted.  Pay slips were issued for the payment of the troncs.  HMRC subsequently served enforcement notices on the employers, stating that they were not paying their workers the NMW.  The employers considered that the workers were paid in excess of the NMW, if you included the tronc tips.

The Employment Appeal Tribunal held that the troncmasters owned the money (on trust for the members of the tronc) at the point of payment, not the employers. This was relevant as the NMW legislation states that wages making up salary for the purpose of the NMW must be paid by the employer, and any tips not paid through the payroll do not count toward NMW.  As the tronc tips were not paid through the payroll, they could not be included in the calculation for NMW. 

After this decision, HMRC issued a news release stating that employers will have to ensure that they pay workers at least the NMW regardless of any tips, gratuities, service or cover charges, as long as these are not paid by the employer directly through the employer's payroll.  To see the news release click here.