The Employment (Allocation of Tips) Act 2023 and subsequent updates regulate how tips are handled for employees and agency workers.
What does the tipping legislation mean?
Under the legislation, employers (you, the client) are required to pass on all qualifying tips, gratuities, and service charges directly to workers (internal employees, agency workers - including Flexers) without any administrative or processing deductions.
This applies to tips received by the employer and distributed to workers, as well as tips received directly by workers but controlled or influenced by the employer.
Tips given directly to workers without employer involvement are not covered by this law. In this instance, workers report these to HMRC directly.
Key Provisions of the legislation:
Mandatory tip allocation: Employers must distribute all qualifying tips to workers fairly and transparently, without any deductions except for statutory Income Tax and National Insurance.
Written Tipping Policy and review: Employers must maintain a written policy detailing how tips are managed and distributed, which must be accessible to all workers. In line with statutory regulations, these policies must be periodically reviewed (at least once every three years) ensuring transparency across the affected workforce.
Record keeping: Employers are required to keep detailed records of all tips received and their distribution among workers for a period of three years. Workers have the right to request access to these records once every three months.
Enforcement: Workers can enforce their rights regarding fair allocation and policy transparency through the employment tribunal system. Judges will consider the statutory Code of Practice when resolving disputes related to tipping practices.
How does that impact the way Flexers receive tips?
For agency workers, the statutory long-stop requires clients to pay any allocated tips to the agency (Indeed Flex) no later than the end of the month following the month in which the customer paid the tip.
However, to align with Indeed Flex’s weekly payroll processing and ensure your temporary staff are rewarded promptly, clients are expected to report the total amount of tips, gratuities, and service charges earned by each Flexer during the previous week by 11:59 PM GMT/BST on the following Tuesday.
Example timeline:
1. If a Flexer earns a tip during a shift, and you submit the total via our portal by Tuesday at 11:59 PM, Indeed Flex will process and pay the worker on the following Friday.
2. Legally, the absolute long-stop deadline for a tip collected in October is for you to transfer it to Flex by November 30th, and for Flex to disburse it by December 31st. However, we aim to operate much faster than this via our weekly cycle.
What responsibilities does Indeed Flex have when facilitating tip payments?
As the labour provider, Flex’s role is to act as a secure payment facilitator, passing the tips from clients to workers. We ensure that the full amount of tips received from clients is passed on to Flexers within the statutory timelines.
Please note that Indeed Flex is not responsible for determining the method, metrics, or fairness of tip distribution among your workforce. This responsibility rests with the client for non-Tronc arrangements, or with the independent Troncmaster where tips are distributed through a Tronc. We recommend consulting your legal or HR teams to ensure your tipping arrangements remain compliant with the Employment (Allocation of Tips) Act 2023, the statutory Code of Practice, and any applicable HMRC guidance relating to Tronc schemes.
Clients must provide Indeed Flex with the final tip amount payable to each worker. Where tips are distributed through a Tronc, these amounts must be supplied by, or on behalf of, the independent Troncmaster.
Clients will be billed for any statutory employer liabilities arising through payroll where applicable. This is not an administrative fee.
What does this process look like?
To facilitate payment of allocated tips, you can record and upload any tips allocated to Flexers via the timesheets tab on the client portal. At the end of each week, add and allocate tips for each worker (Flexers/Agency Partners) through the following process:
- Go to the Timesheet page > select Manage on the additional earnings card > view the additional earnings page > select Add
- Click Add Tips to add tips to the system > View Summary to make sure all information is correct > View Earnings List to see what you have added
- The submitted tip amounts will be paid directly to the workers via Flex’s payroll system, ensuring the appropriate tax and National Insurance treatment is applied where required
Indeed Flex retains the client's written tipping policy, records of the tip amounts submitted for payment through payroll, and, where applicable, details of the nominated independent Troncmaster and any Tronc administrator. These records are retained for compliance, payroll administration and audit purposes only. Responsibility for determining tip allocations remains with the client or, where applicable, the independent Troncmaster.
If you have any questions or require assistance, please contact your account manager.
What should I consider when putting a tips distribution policy in place?
The Code of Practice recommends that employers use clear and objective factors when deciding how tips are split. Non-exhaustive examples set out in the Code include:
- The number of hours that the worker worked when the tip was received
- Individual or team performance
- The seniority or role of the worker
- The length of service
Whichever approach you take must be transparent, objective, and clearly explained within your written workplace policy so that all staff - including agency workers - have a clear understanding of the criteria applied.
How does this work when using Agency Partners?
Agency Partners will receive a spreadsheet with the tip amount using the same method they receive their timesheet.
Can tips be submitted monthly instead of weekly?
While Indeed Flex prefers weekly tip submissions, we understand many clients follow a monthly payroll schedule. You may submit your monthly tip sheets, and they will be processed into the weekly payroll cycle within one week of receipt.
How will I know when tips have been processed?
An invoice will be issued the same week tips are processed, providing confirmation.
Is VAT added to tips?
VAT is not applicable to tips, as freely given tips are outside the scope of VAT.
Will workers receive their tips weekly?
Regardless of whether tips are submitted weekly or monthly, Flex ensures they are processed within a week. If submitted by our Tuesday 11:59 PM deadline, workers will receive their tips that same week on Friday.