Requirement to deal with tips, gratuities and service charges Section 3: Independent troncs
This section inserts section 27F, which addresses how the employer’s obligations apply where qualifying tips, gratuities and service charges are allocated through a tronc system (see commonly used terms, above) which operates independently of the employer.
	Subsection 27F(2) deals with situations where an employer arranges for all of the total amount of qualifying tips, gratuities and service charges paid at (or attributable to) a place of business during a reference period (which must be of at least one day – see subsections (1) and (9)) to be allocated between workers by an independent tronc operator. To determine whether it is fair for the employer to make tronc arrangements under subsections 27F(2) or (3), regard must be had to the code of practice, see subsection 27F(4). If it is fair for the employer to make those arrangements, subsection 27F(2) provides that the total amount of those tips is treated as having been allocated fairly between workers in accordance with section 27D(1) (the obligation to allocate fairly, as explained above). Subsection 27F(3) then deals with situations where an employer arranges for part of the total amount of qualifying tips, gratuities and service charges to be allocated between workers by an independent tronc operator. Similarly to 27F(2), if it is fair for the employer to make those arrangements, that part of the total amount of tips is treated as having been allocated fairly between workers. The overall effect of these provisions is that the employer is responsible for the fairness of the allocation of an aggregate amount to a tronc, but not for the subsequent allocation of that aggregate amount between individual workers, which is a matter for the independent tronc operator. However, if it becomes apparent to the employer that the independent tronc operator was acting unfairly in allocating the aggregate amount, it is the responsibility of the employer to act to ensure that tips are allocated fairly.
	Subsection 27F(5) makes it clear that section 27D(2) (which provides for an employer to pay to workers the sum of tips which they have been allocated under section 27D(1), subject to any statutory deductions) does not apply to an amount which is treated as having been allocated fairly under the provisions dealing with independent troncs and which is payable to the worker by the independent tronc operator.
	Subsection 27F(6) defines an "independent tronc operator" by reference to a person who the employer reasonably considers to be operating arrangements which are independent of the employer and where the payments made to workers under these arrangements are payments to which paragraph 5(1) of Part 10 of Schedule 3 to the Social Security (Contributions) Regulations 2001 applies. That paragraph relates to exemption from national insurance contributions. Normally, payments by a tronc will fall within that paragraph and the tronc will be deemed independent if it is operated without direct or indirect control of the employer and where qualifying tips, gratuities and service charges are paid to workers of the employer. A sum of tips can be allocated by an independent tronc operator even in circumstances where the sum is eventually payable to the worker by the employer (see subsection 27F(6)(b)). This would typically be the case where a tronc makes use of an employer’s payroll system and the independent tronc operator instructs the employer as to how much each worker should be paid on account of the relevant sum of tips. Subsection 27F(6) also requires that the amounts paid to workers are not subject to deductions other than statutory deductions such as tax (see subsections (6)(c) and (9)).
	Subsection 27F(8) grants the Secretary of State the power to amend the definition of "independent tronc operator" by regulations, as a result of the making of any subsequent provision in social security contributions regulations (such as by way of amendment to the Social Security (Contributions) Regulations 2001). This power is intended to ensure that the current effect of section 27F can be maintained in the event of any amendment to social security contributions regulations. Regulations made under the power are subject to approval in draft by each House of Parliament under the provisions set out in section 236(3) of the Employment Rights Act 1996 (which apply to section 27F because of section 12(2)(e)(ii) of the Act).