The Central London Employment Tribunal has ruled that money paid to employees through a separate tronc payroll does count as earnings towards the National Minimum Wage (NMW).

This is the latest reverse for HM Revenue & Customs (HMRC) about the treatement of tronc monies.

BHA Patron Suppliers, Vantis, instructed David Griffith-Jones QC to represent their client, a high-profile group of London businesses, against the Revenue’s claim that workers did not receive their entitlement under NMW regulations between 2000 and 2003.

Employees were paid between £3 and £4 per hour through the business payroll and also received significant sums from the tronc.

A significant number of employees received enough money in total to be paying tax at 40 per cent, yet despite this the Revenue contended that they had not received their NMW entitlement.

The Tribunal ruled that the tronc payments, which represented discretionary service charges and credit card tips, had indeed been paid by the business even though they had been passed to the troncmaster to allocate and distribute. Additionally the Tribunal found that the troncmaster’s payroll is an integral part of the business payroll.

Peter Davies, enquiries manager at Vantis, said: “This is a victory for common sense. It was a classic case of arguing form over substance to suggest that an employee earning enough to pay 40 per cent tax had somehow not received their Minimum Wage and was being exploited just because a tronc was in place.

“Innocent businesses have been put through many months of stress and anxiety, not to mention great financial cost, because of the refusal by HMRC to recognise the reality of the situation.”

Businesses with separate tronc systems should strongly consider merging the two systems together despite today’s ruling. Where a separate system is still needed it will count towards Minimum Wage earnings provided that it is funded by the proceeds of discretionary service charges and credit card tips (not cash tips), that the troncmaster is an employee of the business and required to operate the tronc as part of their duties of employment, and provided that sufficient records are made available to the employer to be certain that the aggregate total received by the employee is at least NMW. Additionally, and in order to retain exemption from National Insurance, it must be clear that the decisions regarding the allocation of tronc monies to members remain solely with the troncmaster.

For further information please contact Peter Davies at Vantis Tax on +44 (0)20 7549 2497