The Employment (Allocation of Tips) Act 2023 now in place, not only addresses how employers must proceed and process tips received from customers for employees but also includes specific reference to agency workers engaged within hospitality.
This has proved to be one of the thorniest issues about the new legislation and one in which a clear path is still not evident.
Agency workers are a vital part of the hospitality sector, often covering for sick employees, on holiday, or failing to turn up for work. Of course, agency workers are also very important to cover one-off events, which could not take place, but for the critical role that agency workers play.
Previously, agency workers would have been outside a tronc scheme or tips policy as the hospitality operator did not employ them. However, this was often offset by the fact that they were on a higher hourly rate than employees.
The new legislation has turned this on its head and states that agency workers should receive money from tips paid by customers when working for an ‘employer’. Which in effect gives them the same rights as employees.
Many operators have eagerly awaited the Code of Practice to ‘explain’ the legislation to see how it impacts agency workers. In this blog I will try and unpick both the legislation and Code of Practice around agency workers.
Legislation
Unusually, the legislation contains more information on agency workers than the Code of Practice. Section 5 of the Act, referring to Section 27G of the Employment Rights Act 1996, refers to an agency worker as an ‘eligible agency worker’, basically a worker provided to a third party by the agency to undertake work, who the third party does not directly engage.
The legislation then states that an amount payable to the worker may be paid to the agency (as you would expect as the agency is providing the work) and because the agent is paying the worker, the agent must not make any deductions (aside from statutory deductions such as Income Tax) from the amount payable to the worker.
Code of Practice
Paragraph 19 is the main part of the code affecting agency workers, stating, ‘after the hirer has made the payment to the agency, the agency is responsible for passing on this to the agency workers, without unauthorised deductions’.
So what does this mean in practice for the business, the agency and the worker?
For the business
Agency workers must be included in the full allocation of the tips as part of a tronc scheme, with the full amount being paid to the agency.
For the worker
Here is the difficult part, and one not covered by the legislation or the Code of Practice. The traditional impact of an independent Troncmaster is that Employees’ National Insurance Contributions are not deductible from the payments processed through payroll as tips. National Insurance only applies to payments arising out of employment. The payment authorised by the Troncmaster is a payment from the tronc scheme and not employment (the tronc does not employ anybody). Income is still taxable, but this is not income from employment.
This is an enormous grey area and one that will not be resolved until a case is taken before the Tribunal. However, agencies should deduct tax and NIC from payments paid to an agency worker, where and when appropriate, and therefore, it seems logical that Employers’ and Employees’ NIC is accounted for. The employer is responsible for notifying the agency of the amounts payable to the agency workers, not the Troncmaster.
For the agency
The agency is responsible for deductions of Income Tax and NIC, although the employer/business is responsible for paying the agency, payments which must include the Employees’ NIC and SSP. BUT, is Employees’ NI applicable on tronc payments? Certainly not when made to an employee by the employer under the instructions from a Troncmaster, but as an agency worker is deemed to be employed by the agency for tax and NIC, therefore NI would seem to apply.
So, where do we go from here?
Does NIC apply for employees and employers on tip payments paid through an agency?
As the intention of the tips legislation is that employees receive the full amounts received by the employer, and the legislation maintains the NIC special treatment, the answer is probably not, which is perhaps counter to the majority of the arguments that I have made above.
Further clarity is required, and until we get that agencies should tread with caution and perhaps seek a written ruling from HMRC.