The Act aims to ensure two important changes for salon workers (like salon, spa or barbering professionals):

1. 100% of tips or service charges left by customers are paid directly to employees (the employer cannot take any deductions for admin or transaction charges for example)
2. The allocation is dealt with fairly and transparently

The Act covers any tips and service charges that are ‘employer-controlled’  – i.e. the employer collects the tips or has a hand in allocating and distributing them among employees. Typically this means tips and service charges paid by card – but if the employer also has control over collecting and distributing cash tips (like having a tip jar / giving cashback from the till), then the act will cover these too.

80% of all UK tipping now happens by card, not cash.

(According to UK Government statistics)

The Act has now completed the parliamentary process and is expected to come into force at some point in 2024, most likely in October.

Both client-facing and non-client-facing employees can receive a share of tips as long as their role is linked to the salon where they were paid. So this covers service providers, apprentices, front-of-house staff and back-of-house staff.

‘Agency workers’ are not common in salons in the UK, but if you do employ agency workers, they are entitled to a share of tips in the same way direct employees are. Given agency workers are entitled to a share of tips, it is also likely that self-employed workers at your salon will also qualify for a fair share of tips, though this is yet unclear in the legislation.

Now that The Act has been passed, the UK Government is working on a ‘Code of Practice’, which will provide practical guidance around fair allocation. This is still a work in progress. Typically in a salon, the fair distribution of tips means tips left by a client would go directly to the service provider(s) who carried out the service on that client.

Under The Act, the salon owner must have a transparent and written policy made available to employees on how the salon collects and allocates tips, and employees must be notified of any changes. You may also need a publicly displayed tipping policy for clients.

Tips must be allocated and paid to workers no later than the end of the month following the month they were received from the customer. For example, tips received any day in May must be allocated and paid by the end of June.

No – all tips paid at a single salon must be allocated to the workers at that salon.

No – it is prohibited under The Act to negotiate with a worker to vary their salary/wage package in return for a share of tips.

• The Act stipulates that a written policy must be maintained, which fully explains how tips and service charges are collected, allocated and distributed to workers – and states how the policy meets the terms of the legislation
• Policies may be the responsibility of the business, the troncmaster, or both, depending on how they are collected and distributed
• Full records of tips and service charges collected and distributed must be kept for 3 years
• Workers can ask to see the policy and/or the records and these requests must be met, though there are rules regarding the time passed and number of requests permitted
• Workers must be informed of any changes to a tipping policy
• You may also need a publicly displayed tipping policy for clients

If tips are allocated by you, the employer, and you are not paying the relevant taxes based on how you handle tips (such as PAYE and National Insurance), you are at risk of an audit by the HMRC, and you and your employees will be liable to pay back-taxes and tax avoidance fines. Your employees can also take complaints against you to an employment tribunal.

If you don’t make changes to ensure you are not involved in directly allocating your employees’ tips, both you and your employees will pay more tax and fees on tips than is necessary. Using PhorestTips for tips taken via card will ensure this is not the case.

There are a few ways to be compliant with The Act. Each will incur different taxes and/or fees for salon owners and employees. Use our handy tipping tax calculator to compare at a glance, or keep reading for an example.

Let’s say one of your employees is making £1,000 in tips in a month, and these tips are collected via card payments and allocated by you.

Payroll

• If you pay out those tips via Payroll, your employee will pay 12% National Insurance (£120) and 20% PAYE (£200), meaning they keep only £680
• Meanwhile, your business needs to pay an additional 13.8% National Insurance on the tips, costing you £138 per employee per month.

Tronc scheme

• If you pay out those tips via a tronc scheme, your employee will pay 20% PAYE (£200), meaning they keep only £800
• Meanwhile, your business needs to pay a fee to an external tronc scheme (internally appointed troncmasters do not guarantee compliance) – this can range from a minimum of £100 upwards per month depending on the size of your business.

PhorestTips

With PhorestTips, tips paid by card do not enter the employer’s account at any stage, tips are paid directly into the employee’s account. This means:

• The entire £1,000 is retained by the employee (though, just as with cash tips, they are required to declare this on their year-end tax declaration to HRMC)
• There are no fees or taxes incurred by your business.

The tax process for PhorestTips for your employees is very similar to how cash tips are handled. The full tip amount will be sent directly to employees’ accounts, bypassing payroll, meaning no PAYE tax will be deducted before it reaches their account. The HMRC does require PAYE is paid on all income, including tips, so just like with cash tips, your employees are expected to declare their untaxed tipping income to the HMRC at year-end, and pay any outstanding tax.

No. The Act stipulates that the employer cannot take any deductions for admin or transaction charges. Use our handy tipping tax calculator to compare at a glance the fees and taxes incurred in various situations.

With PhorestTips, however, there are no taxes or charges incurred by employees or employers. The client leaving the tip will incur a small transaction fee, though they can opt to take this fee out of the tip amount. This does not impact compliance with the act since the tip is never handled by the employer, it is a direct transaction between the client and employee. There is never a cost to your business.

In this case you will be impacted by the legislation – here are the pros and cons:

Pros

• Staff can accept both cash and card tips
• Easier for staff to remain tax compliant as tax on tips is calculated and processed via your normal Payroll process.

Cons

• An additional cost for your business – you need to pay 13.8% National Insurance contributions to the HMRC on tips and these cannot be covered by your staff
• An additional cost for your staff – staff must also pay 12% National Insurance contributions to the HMRC on tips
• You need to maintain a tipping policy document
• You need to retain full tipping records for 3 years
• You are liable to be taken to an employment tribunal by employees if they have complaints against how you handle tipping
• Staff may be waiting up to 2 months for tips to be paid into their accounts.

A tronc is an agreement and process for handling and distributing tips and service charges among salon workers. The tronc is managed by an appointed troncmaster. In some salons, the appointed troncmaster is an employee, though many don’t want to take on the additional responsibilities, so external and independent tronc providers can be appointed. The troncmaster is responsible for allocating and distributing tips among staff.

Pros

• You’re automatically compliant with The Act – it stipulates that if an EXTERNAL, independent and compliant troncmaster is appointed, the employer is deemed compliant with The Act
• No National Insurance contributions need to be paid on tips by employers or staff
• Staff can accept both cash and card tips
• Easier for staff to remain tax compliant as tax on tips is taken via PAYE.

Cons

• An additional cost for your business – the cost of an independent tronc scheme can range from hundreds to thousands of pounds per year depending on the size of your salon business and the intricacies of the agreement
• Appointing an internal troncmaster does not make you automatically compliant with The Act
• It may require additional integration work with your POS software or card terminal, or else the use of additional QR codes – a headache for your clients
• You need to work with the tronc to maintain a tipping policy document
• You need to ensure the tronc provider retains full tipping records for 3 years
• You have a responsibility to monitor the tronc and step in if deemed unfair or non-compliant
• Staff may be waiting up to 2 months for tips to be paid into their accounts.

Pros

• You bypass The Act as it only applies to ‘employer-controlled’ tips – cash tips are collected directly by staff
• You don’t need to maintain tipping policy documents or records
• No National Insurance contributions need to be paid on cash tips by employers or staff
• Immediate payment of tips to staff.

Cons

• Staff miss out on 80% of tips (according to UK gov stats, 80% of tipping now happens by card, not cash)
• Difficult for staff to remain tax compliant – staff must maintain their own records on tips so they can report tip earnings to the HMRC and pay income tax at the end of the year
• If cash tips are collected in a tip jar, they will fall under the remit of the legislation (as the employer has a hand in collecting and distributing them) and so will require National Insurance contributions from both the employer and employees, and you must comply with the policies and record keeping.

Yes, you will need to have a PhorestPay account and use a PhorestPay Card Terminal to avail of the PhorestTips feature. Reach out to a PhorestPay Advisor if you need to get set up with PhorestPay.

According to Phorest data, the average salon sees a 25% increase in tips when using a PhorestPay card terminal with tipping prompts, as clients can leave a tip without needing to bring cash to their appointment, or without having to scan a QR code. Accepting tips using the PhorestPay card terminal is better for your team, too, as it allows them to accept more tips, pay less tax, and make more money.

Yes. Each of your staff and the self-employed professionals at your salon will have their own PhorestPay account. The tip will be sent directly to the account(s) of the professional(s) who carried out the service(s), while the payment for the service(s) and product(s) will go to your account.

The tipping experience will be seamless for salon customers – 

• They won’t need to make a separate transaction to pay a tip or use any QR codes, they are prompted to leave a tip while paying for their service
• They can skip the tipping step entirely if they wish
• You can customise how you prompt them (e.g. allowing a custom amount or suggesting percentage options)
• They can opt to incur the transaction charge themselves or take it from the tip amount (i.e. passing the tip transaction charge to the employee, not to your business).

Yes. Each of your staff (and any self-employed professionals at your salon) will have their own PhorestPay account. The tip will be sent directly to the account(s) of the professional(s) who carried out the service(s) on the client, while the payment for the service(s) and product(s) will go to your account.

In order for an employee to get a share of the tip, they will need to be recorded on your Phorest system as having provided some part of the service that day. While it’s not common in the salon industry to share tips among staff who are not directly involved in providing a service, we will be adding this capability to PhorestTips in the near future.

The tips will be paid instantly to their PhorestPay account and they will be notified immediately. These tips will be paid out to your employees bank account the next working day. We will offer instant payouts to bank accounts in the next few months – keep an eye out for this feature!

No, it won’t be possible for owners to see tip information, this will only be visible to the staff member(s) receiving the tips. If you were to see information on tips received, it could mean you were not compliant with The Act.

No, there is no cap on the amount of tips that can be processed through PhorestPay or PhorestTips.

No, PhorestTips will be completely free to business owners as a feature within the PhorestPay system. There will be a small transaction fee for your clients on payment of the tip. This will default to the client incurring this fee, but they can opt to take it from the tip amount (i.e. passing the tip transaction charge to the employee, but not to your business).

The tax process for PhorestTips for your employees is very similar to how they handle cash tips. The full tip amount will be sent directly to employees’ accounts, bypassing payroll, meaning no PAYE tax will be deducted before it reaches their account. The HMRC does require that income tax is paid on all income, including tips, so just like with cash tips, your employees are expected to declare their untaxed tipping income to the HMRC at year-end, and pay any outstanding tax.

You’ll be automatically opted in to PhorestTips when it launches, but you’ll need to get your team set up with their own PhorestPay accounts to receive their tips. We will send you instructions on how to do this closer to the launch of the feature.

Nothing – we will automatically enable this feature on your device in the coming weeks. We’ll be in touch beforehand with more information to make sure you and your staff are fully prepared.

You will need to have a PhorestPay account and use a PhorestPay Card Terminal to avail of the PhorestTips feature. Reach out to a PhorestPay Advisor to get your business and your team set up with PhorestPay.