Minimum Wage & The Treatment of Tips

Many restaurants and bars operate an arrangement under which tips are collected together and distributed between staff independent of the employer. When this is done the payments are not made by or on behalf of the employer  and no tax or National Insurance Contributions are deducted on the gratuities. The arrangement is known as a tronc arrangement. However where an independent tronc arrangement is in operation the employer cannot then claim that the payments the employees receive form part of their pay for minimum wage purposes. HMRC took Annabel's nightclub and others to court to establish this point as the appellants believed the reverse. Under certain circumstances tips can form part of minimum wage, but this Court of Appeal decision excludes cases where an independent tronc is operated.