According to a recent court decision, which is believed to be the very first of its type, pooled tips and services charges (also known as “tronc” payments) should be included in holiday compensation.
In the case of Palanki against The Big Table Group the claimant was employed by a branch of Las Iguanas in Wembley (London), where a discretionary charge on bills of customers and a tronc distribution system were used to pool and distribute the charges among the staff.
The monthly tronc payment is paid in the same way as wages for employees and appears separately on their pay slips. Mr Palanki filed an internal complaint when he received only basic pay while on annual leave.
This was denied. The claim was rejected.
The tribunal stated that the contract of employment stipulated that service charges were to be split between all staff members who took part in the tronc. However, it also stated that employees do not have any contractual right to receive tips or other gratuities.
The court found that although he did not have a contractual right to tips during a given week, his contract entitled him to the tronc payments that were made under the tipping policy of that company.
The court determined that he had a right to the share as long as a tipping policy existed.
A new tipping law was introduced in October of last year. It requires that employers have a tipping policy written down and workers receive a fair portion of tips. This case, however, did not take into account the new Act as the facts were older.
The tribunal found that the tronc payment was made “by the employer” to the employee from the PAYE payroll, and it had been recorded on the payslip. Therefore, the payments should be considered when calculating holiday pay.
The judge found the tronc payments to be “intrinsically related” to Palanki’s performance of tasks in his employment contract. At times, they could amount to up to 50% of his salary.
Palanki won his case for unpaid holidays and deductions. The tribunal will discuss backpay if the company and the claimant are unable to agree on the amount owed.
Glenn Hayes a partner at the law firm Hill Dickinson explained that many hospitality businesses excluded tips and service fees paid via a tronc to staff from holiday pay, and instead based it solely on basic pay.
“In reality, this approach has been questioned for a while based on the case law because tips are closely related to the quality and quantity of work performed by the worker. For example, good customer service.
“However in the absence a ruling that suggested it was incorrect, employers are often willing to risk claims.
The amendments to the Working Time Regulations made in January 2024 which incorporated many of the case-law principles into the legislation, increased the risk that workers who do not receive tips on their holiday pay would bring a claim.
This case shows that employment tribunals are willing to consider the total remuneration of an employee and make sure they get the same pay while they are on vacation as they do when they work.
Employee audit recommended
Hayes suggests that businesses in the hospitality industry audit their policies, procedures, contracts and workforces to ensure they are compliant with this ruling.
He said: “Employers must check the payments that workers receive and include or exclude them from their holiday pay. This decision only applies to tronc payments. Other areas of noncompliance include overtime and bonuses.
The new Fair Work Agency will have extensive enforcement powers, and can even issue penalties for any violations of holiday pay laws. So getting the situation right is a priority.
Hayes explained further that the decisions made in these cases would depend on the specific facts of each claim.
As this is a tribunal case, it’s not binding. We can’t say that tips paid through a tronc are always included in holiday pay. This is something that needs to be evaluated on a per-case basis, taking into account the types of tips collected and any contracts or policies in place.
In most cases, however, we believe that, given the new legislation and this particular case, tips paid by a tronc to an employer through their payroll should be included in the holiday pay.
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