COMPLIANCE
to those payments. If no tips are received by the employer in any given period, the employer will not be required to pay anything to the claimant in respect of tips”. Differentiation This judgment seeks to differentiate between a contractual right under the Employment Rights Act, which it believes an “entitlement” clause provides, and a contractual right for NI purposes, which it believes doesn’t exist, as the amount of the award was genuinely decided upon by the troncmaster. The tribunal then considers an alternative argument in favour of the claimant, which is that because Big Table held the tronc funds in their own bank account and then paid it to the employee via their own payroll this means that the tronc payment was a “payment by the employer to the employee” and as such was “earnings” for the purposes of the Employment Rights Act. In doing so, the tribunal has referred to the Court of Appeal’s findings in the 2009 national minimum wage case concerning Annabel’s. Read more about that case here: https://ow.ly/5x2Q50UXGrB. The logic of that judgment would support the tribunal’s line of thought in this case, although it takes no account of the changes implemented by the Employment (Allocation of Tips) Act 2023. It also once again seeks to suggest that what’s correct and proper for the purposes of the NI regulations can be wrong for the purposes of the Employment Rights Act. Finally, the tribunal summarises what
it believes is the intent and purpose of the Working Time Directive, which is the legislation that sets out the principles of holiday pay. In the tribunal’s words, “the purpose of payment for annual leave under the Working Time Directive is to put the worker in a position, as regards his or her salary, comparable to that enjoyed during periods of work. Workers should not be deterred from taking their full holiday entitlement by being financially disadvantaged as a result”. It’s this principle which underpins the thinking shown throughout the judgment. “Given that the judgment isn’t legally binding, and is likely to proceed to an appeal, businesses may wish to wait
final resolution of the case before making changes to employment contracts or pay arrangements. Others may not and may wish to consider the changes they want to start making now. Those businesses where ‘holiday tronc’ has been paid to workers based on their usual rate are unlikely to be affected by this judgment (either at this stage or if the judgment is ultimately upheld on appeal). Given that tronc payments paid when at work must be included in the calculation of holiday pay due, tronc paid when on holiday should also be counted towards a worker’s holiday pay entitlement. So, if a business has paid ‘full rate’ holiday tronc, they’ll be protected from any backpay claims for underpaid holiday pay. A business in which employees have no contractual entitlement to tips, service charges and tronc, and which doesn’t pay any such amounts directly to their workers through their own payroll will be unaffected by this judgment. This is true even if those workers receive no share of tips or tronc when on holiday.
for the final resolution of
Key takeaways The tribunal was clear that it didn’t
the case before making changes to employment contracts”
believe anything in its judgment had an implication on whether NI contributions are due on “holiday tronc”. And that, while it believed an “entitlement” clause created a contractual commitment for the purposes of the Employment Rights Act, it didn’t do so for the purposes of the NI legislation. Therefore, this judgment should have no impact on the taxation treatment of tronc paid in respect of holidays. n
Who will this impact? Given that the judgment isn’t legally binding, and is likely to proceed to an appeal, businesses may wish to wait for the
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| Professional in Payroll, Pensions and Reward |
Issue 109 | April 2025
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