Long read: Why has the covid-19 furlough scheme ignored tronc payments?

Neil Simpson

18 May 2020

Chancellor Rishi Sunak has eased lockdown pain with the JRS scheme, but tronc isn’t included – has coronavirus exposed a fragile system?

If your cursor is flitting between Zoom rooms, headlines of doom, disinfectant injection memes and imbibe.com (hi), we’ll assume you’ve been furloughed. The government’s Job Retention Scheme (JRS) pledged 80% of wages but, in excluding tronc (a common fund into which tips and service charges are paid for distribution to staff), the sums don’t add up for bartenders and sommeliers. Was this a simple oversight, or is tronc tainted?

Obligatory payments only

On 29 April, MPs questioned the Treasury Committee on excluding tronc. According to Beth Russell director general tax and welfare, ‘the design of the scheme […] is that it covers 80% of obligatory, regular payment’, and ‘the difficulty with tronc particularly is that, in some cases, it is notified to HMRC and in some cases it is not […] we are generally taking an approach that discretionary payments are not included and obligatory payments are’. The Committee concluded that the JRS still has ‘a number of hard edges’. It remains to be seen whether those edges will be smoothed or not, but the industry is mobilising.

My suspicion is that a lot of these decisions were having to be made in a hurry, by people who are several steps removed from the detail

Peter Davies

Challengers include the trade body UKHospitality. ‘Excluding tronc payments is not in the spirit of the furlough scheme’, argues chief executive Kate Nicholls. ‘Employees have already paid tax on this income, so they should be treated fairly.’

Does that mean Beth Russell’s got it wrong? According to WMT Troncmaster Services, she has: ‘The overwhelming majority [pay tronc tax] because that’s what the law says you have to do,' argues the accountancy firm’s MD, Peter Davies. ‘My suspicion is that a lot of these decisions were having to be made in a hurry, by people who are several steps removed from the detail.’

Davies, who advises hundreds of UK hospitality businesses, applied pressure in a letter to the government on 6 May, co-signed by more than 50 industry leaders.

What’s the damage?

The problems being caused are summed up by co-director of restaurant group Corbin & King, Jeremy King: ‘Service charge tronc represents for many [Corbin & King] staff as much as much as 60% of their earnings and is their chosen way of receiving renumeration’.

For furloughed bartenders like Jenny Griffiths (Heads & Tails, Hampstead) and Philip David (Callooh Callay, Chelsea), this means they’re behind on rent. ‘I’m contracted to 45 hours a week’, says Jenny, ‘so that’s obviously a positive, but with the tronc [exclusion], my take-home is closer to about 60% of my wages’. Philip’s furlough meanwhile is ‘a bit of a joke’, because his workplace is a new opening and staff weren’t yet on full hours; ‘if they were to reduce [my furlough] any further I don’t think I’d have to pay tax, because I’d be below the threshold’.

Service charge tronc represents for many [Corbin & King] staff as much as much as 60% of their earnings

Jeremy King

Grey area

By contrast, tronc exclusion may be a smaller issue for pubs. The positive furlough experience for bar staff at Essex independents The Sun Inn and Church Street Tavern, mirrors other industries: ‘negligible’ tips mean they’re already paid ‘above minimum wage from 3% to 12%, depending on experience and loyalty’, explains landlord Piers Baker.

Having said that, the government has factored in declared tips when calculating JRS payments for self-employed taxi drivers and hairdressers. So, why not tronc?

Alexandra Badoi, head sommelier at Meraki in Fitzrovia, says tronc was ‘invented to save National Insurance contributions in the hospitality industry; tips, gratuities and service charges paid via tronc may mean that they are exempt. All this creates confusion’. Perhaps such confusion is why the Chancellor has neglected tronc considerations?

‘That’s possibly why they’ve taken that view,' says James Sutherland, who owns Edinburgh’s 56 North bar. ‘If you’re running a tronc system then it’s quantifiable, but if you’re not, it’s a hell of a lot harder. It would become messy for a lot of operators’.

Wagered wages

Is it time to rethink how hospitality staff are paid in the UK? ‘That’s a logical question because of the current inequity of the furlough scheme, but in normal times, no’, says Kate Nicholls. ‘More important is that there is transparency, fairness and understanding among staff, customers and employers of how tips are distributed.’

For Jenny Griffiths however, minimum wage plus tips doesn’t cut it. ‘Three years ago, I was on over £11 an hour at a late-night party bar in Cardiff. Then I moved to London and a very-well-thought-of bar offered me £8.50 an hour, saying “obviously your tips and tronc will make it up”. I thought that was disrespectful bullshit: I wasn’t waging all of my bets on getting tips and service. Why aren’t London employers being taken to task over the fact that they don’t pay London living wage?’

If you’re running a tronc system then it’s quantifiable, but if you’re not, it’s a hell of a lot harder. It would become messy for a lot of operators

James Sutherland

It appears that, due to the grey area that tips, gratuities and discretionary service charge payments often occupy, furloughed employees at the bottom of pay scales are being short-changed. Could the industry ditch discretionary service charges in favour of higher wages?

As Davies explains, such a change would cost about ‘£1.1bn per year’, because unlike wages tronc payments are exempt from VAT, national insurance, apprentice levy and pension contributions. ‘Only four groups can pay that: the government, the business, the staff or the customers. Whichever group we try to put it on, are they going to stand for it?’

Future-proofing

‘I’d love to see a wholesale change’, says Paul Mathew, co-founder of the Blood and Sand bar group. ‘Ideally, the situation will be that across the board there’s a rise in salaries. I would like everybody to have the option to be on a permanent contract if they wish. We’ve been almost on a race to the bottom for the last decade or two, where rents have been increasing, margins have been shrinking, and all the costs have gone up. It’s a really delicate balancing act and requires a response from the industry as a whole, not an individual one.’

While present hopes lie with the Job Retention Scheme changing its stance on tronc payments, now is the time to consider how we value service staff in the future.

Related articles

Wine

Furlough wage as much as 40% less than average monthly pay for hospitality workers

The discrepancy is due to the fact furlough payments to not take into account tronc, says hospitality software provider Fourth.

Wine

New ‘flexi furlough’ scheme announced by UK government

Chancellor Rishi Sunak announced this afternoon changes to the current Job Retention Scheme for workers and employers.

People & Places

Furlough scheme extended to October

Chancellor Rishi Sunak confirmed today that the scheme would run into the autumn but that companies will be asked to ‘share the cost’ from August

News

Why has BrewDog moved into TV – and will it work?

As the beer Twittersphere erupted, the latest ill-judged publicity stunt from BrewDog seems to have successfully obscured rather than promoted the fac