A cross-party group of MPs has said the government must amend the Coronavirus Job Retention Scheme (CJRS) to allow hospitality businesses to include tronc (service charge) payments in their calculations for furloughed employees. The exclusion of those earnings, which in most cases form part of a worker’s monthly wage or salary and are subject to tax, has been contended since it was announced in April — on the basis that furloughed restaurant workers would be receiving far less than 80 percent of their regular earnings. One of London’s most high-profile restaurateurs described the government’s policy as an “extraordinarily discriminatory ruling.”
Initially, government guidance on whether employers were permitted to include tronc in their applications for furloughed employees was vague. The decision to explicitly exclude it was only announced in late April, after which some restaurants had already begun drafting and submitting applications.
The ruling led to disquiet among prominent members of the industry, before a letter to the treasury in early May written by tronc expert Peter Davies, said that HMRC had misunderstood how the system works. The chief executive of the trade body representing restaurants in the U.K. had also given evidence to the select committee in the previous month.
Davies campaign received the backing of dozens of MPs from across the political spectrum, who agreed that it was unfair and also uncomplicated to remedy. The number of MPs who support the inclusion of tronc in the shceme has increased to 49 following the publication of the treasury committee report this week.
Tronc works by pooling all tips, gratuities, and service charges, and then distributing them among staff in the form of monthly payments, as opposed to each staff member earning individual tips. Because such payments are somewhat predictable, many employee contracts state an official salary or hourly wage that is below the monthly take-home, because of the addition of those tronc payments; in some cases, employers contractually commit to a tronc top-up for staff.
In the treasury committee findings, under a section titled, “The people missing out on support” it said it had “identified the following area where steps should be taken by the Treasury to provide additional support to households.”
Payments made to employees through a PAYE tronc system—for example employees in the hospitality industry whose tips are collected electronically and included in their pay slips—are not currently considered as wages in an employee’s furloughed pay calculations, despite these payments potentially making up a significant proportion of such employee’s regular reliable income, and being subject to income tax.
“The Government must amend the CJRS to allow tronc payments made via PAYE to be included when calculating worker’s pay when assessing entitlement,” the section concludes.
The government has not responded to Eater London’s request for comment on the findings and has not yet indicated whether it will amend its guidance in light of the recommendation.
However, there are those in the legal profession who say that the decision to u-turn on the decision to exclude tronc calculations from furlough applications could have ramifications for the earnings of hospitality workers in the long-term.
Lydia Christie, an employment lawyer at Howard Kennedy, told Eater that while hospitality workers will be pleased to have the support of the Treasury Committee on the issue of tronc payments, “it remains to be seen however whether the report will ultimately lead the government to retrospectively allow such payments to be claimed through the CJRS.”
Christie said: “Whilst the Treasury Committee’s report highlights the unfairness of the CJRS for hospitality workers, it does not address potential wider legal issues, beyond the life of the CJRS, if tronc payments are to be considered as ‘wages’ paid by employers to employees.
“Since October 2009 amounts paid by employers to workers which represent tips, gratuities, service or cover charges paid by customers do not count towards national minimum wage pay. If the Government were now to agree that tronc payments could be considered as “wages” for the purpose of the CJRS, it is not clear how this might impact the national minimum wage position.
“Updated guidance on tipping practices, including tronc management, which addresses the tax, employment law and national minimum wage issues would be welcomed and would hopefully offer much needed clarity.”
UK Hospitality did not immediately respond to Eater’s request for comment on whether they expected the government to act on the recommendation in the report.