TRONC and Auto Enrolment

****New update after a meeting with the Pension Regulator*****

Calculating TRONC in Auto Enrolment

Calculating TRONC in Auto Enrolment

TAP Assist does a lot of work with Peninsula, the HR outsourcing company, who we support by talking about Auto Enrolment at their seminars that they run in various locations. This means we get to meet many different types of employers; one recently was a restaurant owner and they had a question about TRONC.

Now TRONC for anybody who does not know (this included myself until this week!) is “A TRONC is a special pay arrangement used to distribute tips, gratuities and service charges.” as stated on the HMRC website.

It basically allows an employer to collect the tips and probably more commonly things like service charges from card payments and distribute them to the staff. It goes on to say. “Commonly a TRONC is a central pool of funds in which some or all of the tips and service charges paid by customers are distributed to employees. How such arrangements work is entirely a matter for the business. How amounts paid from the TRONC are distributed is a matter for the TRONCmaster, TRONC committee (if one exists) and or TRONC members’’.

Now when it comes to Auto Enrolment, an employer needs to be able to assess an employee’s earnings, calculate contributions as a percentage of the employees “qualifying earnings”, contributions will then need to be deducted on a jobholder’s “qualifying earnings” between a band of £5,668 and £41,450 (2013/2014 figures). Qualifying earnings includes any of the following components of pay that are due to be paid to the worker:

  • Salary
  • Wages
  • Commission
  • Bonuses
  • Overtime
  • Statutory sick pay
  • Statutory maternity pay
  • Ordinarily or additional statutory paternity pay
  • Statutory adoption pay

So does this include TRONC earnings?

I contacted the Pensions Regulator about the question we were asked. The client wanted to know the following:
Because they (the employer) treated TRONC as a separate pay roll would they need to include it in their calculations on qualifying earnings for their employees?

This is the response from the regulator: ‘’Qualifying earnings are a closed list of pay elements and it is up to an employer to determine whether a certain type of remuneration (i.e. TRONC) constitutes as part of a worker’s agreed wages or salary. If they are unsure, then they may need to seek legal advice.’’

TAP Assist recently had a meeting with the Pension Regulator (tPR) and we managed to get further clarification on this topic. The use of the term qualifying earnings is used twice within the legislation; firstly in the assessment process and secondly as one of the potential methods for the calculation of contributions towards the pension. 

For the assessment: An employer should probably use all types of earnings including TRONC earnings

For the calculation of contribution: If you decided to use Qualifying Earnings as your method,  then you should probably use all the earnings, as with the assessment. If you decide to use to self certification you have more flexibility; for example you could just use the employees basic pay (which is tier 1 of the self certification) to calculate the contributions (please note this will require a total minimum of 9% with 4% from the employer)

So to clarify , an employer should probably use all earnings including TRONC for the assessment and for the calculation of contributions, an employer has a little more flexibility and can decided on what earnings go into the calculation, by potentially using self certification.

The fact that the Regulator thinks you may need to seek legal advice would indicate to me that this area is grey and to be honest I would want to be the ‘’whiter side of grey’’ when it comes to anything on compliance, so play by the rules.

The Pensions Regulator information can be found here ‘Assessing the workforce’ and the HMRC TRONC info here

Contact TAP Assist if you would like to discuss further.

Please note these the above is just an opinion and should not be treated as legal advise.

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