The First Tier Employment Tribunal has published its Judgement in a claim brought against Big Table Group regarding entitlement, as holiday pay, to tips during periods of annual leave. This case could have major implications for hospitality businesses.

The background on the case 

The claim concerned discretionary service charge payments (“tips”) paid to the Big Table Group (“the Respondent”) by customers via credit or debit cards, that, when subsequently allocated to staff through a tronc system, had been excluded when calculating the Claimant’s average weekly pay for the purpose of holiday pay.  

The Claimant believed such tips represented his ‘normal remuneration’ that should have been included by the Respondent when calculating the Claimant’s average weekly pay for the purpose of holiday pay. 

The employment contract set out the Claimant’s rate of basic hourly pay, and the only reference to tips within that contract was confirmation of the operation of a tronc system at the site he worked at that would share out the tips amongst staff participating in the tronc system. Therefore, the Respondent believed the Claimant had no contractual entitlement to the payment of tips.  

The Respondent had a written tronc policy (“the Policy”) which applied to all its restaurants, although the exact tronc system was different in each establishment. The Policy was expressed to be non-contractual stating the Respondent is not responsible for the tronc system or the allocations made from it. Instead, the responsibility for the operation of the tronc system at each site was the troncmaster, who at the Claimant’s site was the General Manager of the Restaurant, and HM Revenue & Customs (“HMRC”) had been advised of such. The Claimant performed a Front of House role at the Restaurant. 

What did the Tribunal rule? 

The Tribunal accepted that the troncmaster had carried out her role in accordance with the Policy, enabling decisions to be taken by employees about how to distribute the tips, recording those decisions, and implementing them. In carrying out that role, she had acted at the direction of the employees and not the Respondent. The Respondent was not involved in those decisions. Therefore, there was no suggestion of employer influence of or interference with the tronc system. 

The Claimant was a member of the tronc system, and in addition to his hourly wage, received a share of the tips paid by customers and received by the Respondent.  

The Tribunal reiterated that the purpose of annual leave under the Working Time Directive is to put the worker in a position, as regards his or her salary, comparable to that enjoyed during periods of work. Workers should not be deterred from taking their full holiday entitlement by being financially disadvantaged as a result. 

The Tribunal concluded that, when read together, the references to the tronc system in the Claimant’s contract and terms and conditions provided the Claimant, not with a contractual entitlement to receive any guaranteed amount of tips, but with a contractual entitlement to receive what the Policy will give him on any given week. Therefore, the Tribunal concluded that tips, when paid by customers, were ‘payable’ by the Respondent to the Claimant in accordance with the arrangement agreed via the tronc system. 

The Tribunal also considered that because tronc payments were credited to Big Table’s bank account and paid by the Respondent to employees alongside their wage, and tax was deducted on a PAYE basis by the Respondent on those tips through their PAYE scheme, not the troncmaster’s, the tips were “payable by the employer to the employee” for the purposes of the Employment Rights Act.  

On this basis, the Tribunal concluded that the Claimant’s periods of holiday should have included tips in addition to his salary. 

The Claimant also claimed an uplift of 25% for an alleged failure by the Respondent to follow the Acas Code of Practice on Disciplinary and Grievance Procedures, but the Tribunal concluded that it would not be just and reasonable to increase any award of compensation made in the Claimant’s favour. Further, the Tribunal decided not to make an award to the Claimant under a Preparation Time Order, which may have been appropriate if the Respondent had acted vexatiously or otherwise unreasonably and/or the that the response had no reasonable prospect of success.

What does this mean for me? 

Firstly, it is important to note that no adverse finding was found regarding the operation of the tronc system in place and the tips paid out being disregarded from earnings and not liable for National Insurance Contributions (“NIC”). The case concerned whether the Claimant should have been paid tips whilst on annual leave. 

While this ruling does not create a binding legal precedent, and we are yet to learn if the Respondent will appeal, we strongly recommend that hospitality businesses review their current tipping policies regarding contractual entitlement to tips and periods of holiday. 

There are a few different situations that you could likely find yourself in, which we’ve outlined below:

1. You pay tronc to your workers based on their usual rate with no reductions when they are on holiday/annual leave If you have paid the full rate tronc to your workers, regardless of the periods they have been on annual leave, this Judgement should not affect you. However, you must understand your workers’ contractual entitlement to tips.

2. You pay holiday tronc, but at a lower or fixed rate Your employees may be entitled to bring a claim for the difference between the tips they were paid and the tips they would have received on their full usual rate, as if they had worked. The rules still apply around bringing a claim within three months of the most recent alleged breach, however.

3. Tips are paid in cash or via an app, and not through your payroll As these are not employer-handled/received tips, they do not need to be included in the calculation of holiday pay.

4. You have employees on other periods of statutory leave, such as maternity/paternity/etc. In such situations where workers have not received their full usual rate, in addition to considering their contractual entitlement to tips, you will need to determine what level of tips is paid to them against their contractual entitlement to salary. For example, if they have a contractual entitlement to tips like the finding in this case and are contractually entitled to 90% of their average weekly earnings as Statutory Maternity Pay, they may be entitled to 90% of their full usual rate of tips. 

How we can help 

Buzzacott Troncmaster Services are experts in managing fair and transparent tronc schemes, with decades of experience in the hospitality industry. We offer a number of tronc services, including an audit of your existing tronc arrangement, alongside setting up new and entirely independent schemes.