The manager of a boutique London hotel was keen to recruit and retain top-quality staff. By introducing a tronc scheme the hotel could provide the best incentives for their staff, and identified some unexpected but substantial savings along the way.
A 5-star boutique hotel in the West End of London contacted WMT following a personal recommendation from a satisfied client. The hotel has a significant food and beverage operation and was looking to set up a tronc scheme.
Reducing costs to increase rewards
The key objective was to remove the National Insurance (NI) costs from the tips and discretionary service charge proceeds received from customers and distributed to staff. By not operating a compliant tronc system the hotel was paying more to HMRC in employer NICs than was necessary and employees were taking home less in take home pay than if they worked for the hotel’s competitors, making it more difficult to recruit and retain the right calibre of staff.
Incentive and reward
The hotel was generating between £8,000 – £10,000 each month in discretionary service charge and tips paid on cards. This was, quite legally, being paid to staff as part of their wages and was subject to tax and NI in full.
We were asked to advise on setting up a formal tronc arrangement.
After discussing requirements with senior staff members, we were able to helped the hotel make changes to employee contracts and consulted with staff to obtain their buy in. The tronc scheme ensures that all staff received a share of the money, but also recognised those whose performance had been particularly good and so would act as an incentive.
We also identified that the hotel had been meeting conditions for exemptions from NI but hadn’t realised it. We helped obtain a refund from HM Revenue & Customs of the overpaid NI contributions for the last 6 years.
The hotel also appointed WMT’s Peter Davies to act as their Troncmaster to ensure that the tronc monies were shared out independently and fairly and that they met all of their compliance obligations to HMRC.
The tronc system now means that the proceeds from the tips and service charges are free of both employee and employer National Insurance, meaning the employees taking home approximately £14,500 in extra pay, and the hotel has saved approximately £16,500 in employers NI. The tronc system is used to help incentivise and motivate members of staff by rewarding good performance.
Staff are more responsive and the level of service being given to customers is improving as staff are feeling motivated and rewarded.
The back dated NI claims has resulted in members of staff collectively receiving a refund of £50,000 and the hotel received £70,000.