Skilled Worker Remunerations - Legal Framework for Tips and Gratuities

Employment and remuneration arrangements of sponsored Skilled Worker employees

Is it permissible for a sponsored Skilled Worker to receive gratuity payments via a separate tronc company set up for tax purposes, provided that their primary employment and salary remain solely with the sponsoring company?

What is the correct way to structure gratuity payments to remain fully compliant with immigration and sponsorship rules, while also adhering to HMRC requirements?

A customer or a patron in a restaurant or similar establishment, may make different types of payment on top of the basic charge. This is usually one of the following:

·       a mandatory service charge

·       a discretionary service charge

·       gratuity paid to the employer as part of a cheque, credit or debit card payment

·       gratuity paid into a staff box or similar

·       gratuity handed or paid directly to an employee.

The Tronc system and whether it clashes with the "one employer" rule - HMRC and new laws on tips and gratuities

Definitions

“Tip or gratuity”

A tip or gratuity is an uncalled for and spontaneous payment offered by a customer. This can be one of the following:

·       in cash

·       as part of a cheque payment

·       as a specific gratuity on a credit or debit card payment

·       paid using a digital payment service or application

“Tronc”

A tronc is a special pay arrangement used to distribute tips, gratuities and service charges.

“Troncmaster”

A troncmaster is the person, other than the employer, responsible for arrangements to share tips among employees.

Tips, gratuities and voluntary service charges will be referred to simply as tips in the rest of this article.

“Income Tax and PAYE”

If customers give or pay tips directly to employees or leave them on the table and individual employees keep them without any involvement from the employer, then PAYE does not apply. Tax will be due on these amounts, but no National Insurance contributions will be due.

It is the responsibility of the individual employee to advise HMRC of the amounts received by either:

·       including how much they received in tips in their Self Assessment tax return

·       reporting the amount of the tips received to HMRC

The tax will usually be recovered by an adjustment to the employee’s PAYE tax code.

If employee does not fill out a tax return then they must report the amount of tips they have received. They can do this by either:

·       using their online personal tax account

·       calling HMRC’s Income Tax enquiries helpline

HMRC will give the employer an adjusted tax code. This is where tax is taken from the employee’s wages before they get them.

Employees can contact HMRC if they think their tax code is wrong, or to report the tips they have received. They can do this by either:

·       using their online personal tax account

·       calling HMRC’s Income Tax enquiries helpline

PAYE must be operated on all tips paid by an employer to an employee. Responsibility for operating PAYE rests with the employer even if the employer delegates the task to an employee. This usually means there is a Tronc operating.

Employers must now pass all tips and service charges to workers fairly and transparently under  the Employment (Allocation of Tips) Act 2023.

A Tronc system is one recognised method to comply with this legal requirement. Tronc is a separate pooling system where a troncmaster distributes tips and gratuity to all employees. Tips and gratuity must not be distributed by employers directly.

HMRC recommends this setup, because it ensures fairness, transparency, and avoids payroll mistakes.

Two legal entities paying an employee?

When a restaurant uses a third-party Tronc system, the employee ends up receiving moneys via another legal entity. But that doesn't mean they have two "employers".

The employer remains the restaurant—they assign the Certificate of Sponsorship, handle the job, salary, duties etc.

The Tronc administrator is not an "employer" under immigration rules. They are merely a mechanism for distributing tips to employees, in the legally prescribed manner. The key is that the employment relationship stays with the sponsor - employer, the restaurant—and that's what counts for sponsorship compliance.

The skilled worker must have only one sponsoring employer for the role specified in their Certificate of Sponsorship (CoS).

A second job is permitted subject to strict conditions (≤20 h/week, eligible role); otherwise, employees would need another sponsor.

A Tronc setup—third‑party tip distribution mechanism—does not break the sponsorship rule, because it is not a second employment, it is only a payment mechanism.

HMRC does indeed favour third‑party Tronc systems as best practice for fairness and NIC minimisation, under the new tip‑allocation law.

UKVI Rules on Tips received by Skilled Workers

UKVI does not have specific rules regarding tips for skilled workers; instead, the rules governing tips, gratuities, and service charges for all workers, including those on a Skilled Worker visa, are covered by employment law.

From 1 October 2024, employers are legally required to pass on all tips and service charges to their staff without deductions (other than tax and National Insurance), sharing them fairly and transparently. While tips are taxable as employment income, the employer cannot make deductions for business costs or impose restrictions on how they are distributed.

Employers should advise the Home Office through their SMS system the arrangements made with respect to distribution of tips to employees. Details about registration of a new company, as a Troncmaster, for the purposes of distributing tips to employees, change of tax code or additional tax code and any other relevant information must be provided to the UKVI.

Tronc system can be implemented for distributing gratuities to staff, following HMRC guidance. In order to operate this correctly, and as advised by HMRC, a separate company can be established as Troncmaster, which exists solely for the administration and distribution of staff tips.

Under the Skilled Worker scheme, employee must mainly be employed and paid by his sponsoring employer (subject to any permissible second job). Troncmaster is not an employer, but simply a vehicle to distribute gratuities in line with HMRC requirements.

You are welcome to contact us should you wish to discuss your immigration matter in detail. We shall be pleased to have a consultation with you as per your convenience. We will be happy to assist with your complete immigration application process. Email us on office@arukvisa.co.uk or call us on 07548856403 or complete and submit our contact form.