Fortnum & Mason plans to cut basic pay under 'tronc' system
Fortnum & Mason, the queen’s grocer, has asked staff at its Heathrow bar to accept a cut in basic pay in exchange for a share of tips. The “tronc” system would see an undisclosed proportion of the 12.5% service charge automatically added to bills, which is not presently distributed to staff, shared between them. Documents seen by The Guardian indicate that staff would receive an 11% reduction in basic pay. The changes would reduce workers’ national insurance (NI) payments, but would also cut the company’s own NI bill. The company has already introduced the changes for 250 staff.
The Queen’s grocer Fortnum & Mason is trying to persuade more of its staff to accept a big cut in basic pay in return for a share of tips in a move that will help reduce its tax bill.

The retailer, which recently announced a 27% rise in pre-tax profit to £6.2m in the year to July, currently does not share with staff any of the 12.5% service charge automatically added to bills paid by drinkers at its Heathrow bar.

Fortnum’s is now consulting with the 20 bar staff on introducing a so-called “tronc” system under which the charge would be shared out among them – but only if they agree to take a cut in basic pay. The plans prompted protests on Thursday outside Fortnum’s flagship store in London, which holds two royal warrants.

An illustration of the changes sent to a staff member and passed to the Guardian indicates they would receive a near 11% cut in basic pay, taking them down to the national minimum wage of £7.20 an hour, which would then be replaced by a minimum share from the service charge.

However, the letter does not make clear what proportion of the total service charge paid voluntarily by customers would be allotted to the workers, Fortnum’s or a company called WMT Troncmaster Services that will run the tronc system. It also makes clear that the illustrated payments are not guaranteed.

The letter points out that under the new system the employees would be liable for lower national insurance payments, helping to boost their take-home pay. But the changes would also mean a cut in the tax bill in employer’s national insurance for Fortnum & Mason, owned by an arm of the Weston family, which also owns a large stake in Associated British Foods, the owner of Primark.

The same changes were made to nearly all the 250 staff working at Fortnum & Mason’s restaurants, cafe and bar in London last year.

Unite, which has been involved in a long-running campaign against unfair handling of service charges and tips, said the new system was “shrouded in secrecy” and staff who signed up would be swapping guaranteed pay for an unknown amount of tips.

Unite regional officer Dave Turnbull said: “Fortnum & Mason bosses are treating its loyal and hardworking staff with utter contempt. It needs to start operating a fair, clear and transparent policy to show how it distributes its service charge or risk alienating staff and customers alike.

“We believe that diners will be outraged to learn that the 12.5% service charge they have just paid is being controlled entirely by an outside consultant without any input from staff or clear information on how much of the fee it is pocketing for itself.

“Such underhand practices, which remain rife in the industry, highlight why the current business secretary needs to deliver on the government’s promise to crack down on dubious tipping practices.”

Matthew Brown, technical officer for the employment taxes subcommittee at the Chartered Institute of Taxation, said payments via a tronc system operated completely separately from the employer were not liable for national insurance. But he said that, as service charges are usually set and controlled by the employer it might be difficult for them to prove they had no involvement in the scheme’s operation.

WMT Troncmaster says on its website that one of the main advantages of a tronc system is that it could save a company and its staff a combined 26% in “unnecessary taxes”. It suggests a business with a turnover of £250,000 a year could save £4,000 a year. It adds that a “boutique London hotel” it worked with, which was generating between £8,000 and £10,000 a month in service charges and tips paid on cards, had saved £16,500 in employer’s national insurance.

“There are a lot of savings to be made if this can be done right. I would be surprised if this wasn’t challenged by HMRC,” Brown said.

WMT Troncmaster’s website warns clients that HMRC might check that a tronc arrangement “fully meets the terms for exemption from [national insurance contributions].” However, the advisory company says that it designs and runs tronc schemes to safeguard businesses and “successfully defends businesses challenged by HMRC.”

He added that by reducing the amount of basic pay, any employers involved in such a scheme would also be reducing the potential liabilities for pension payments under auto-enrolment, which are based on basic pay and would not include tips.



Fortnums began consulting with staff at Heathrow just weeks after a government report said charges imposed on staff tips by employers should be scrapped or limited. The report, which followed an eight-month investigation into abuse of tipping kicked off by former business secretary Sajid Javid, also advised that service charges on customers’ bills should also be clear and voluntary.



A public consultation on measures to ensure staff got a bigger share of tips finished in the summer and responses are expected to be published by the Business, Energy and Industrial Strategy department early next year.

A spokesman for Fortnum & Mason said: “In July 2015, we consulted with staff and implemented a new, dynamic and fair tronc system. Nothing was imposed: staff were given a proposal to consider on an individual basis, and of our 250 hospitality staff, only one opted out, who remains with the company. The devising and administration of a tronc system is by its very nature complicated, and to ensure operation within both the letter and spirit of the law, Fortnum’s engaged a respected independent company, WMT Troncmaster Services, who continue to manage the arrangements.

“Since the new tronc system, which is in line with industry standards, came into being, Fortnum’s has not had a single complaint from staff.

“The 20 hospitality staff at the company’s outlet at Heathrow T5 were not included in the 2015 consultation because it was a new site without an established trading record. The company has commenced a consultation with the hospitality staff at T5. This is ongoing.”