Split Payments

Below we outline our Split Payments feature, and the changes coming soon to the tutoring industry in the UK.

We hosted a webinar on Thursday 21st July to go through any questions users had on how this will work. The recording can be accessed here.

What is the ‘Split Payments’ feature?

Split Payments is our name for the feature that splits payments instantly between the company and tutor at time of payment. For example, Ms Jones is being charged £65 for a lesson, with the tutor being paid £40. When Ms Jones makes her payment, the tutor receives £40 and the company receives £25, without the tutor’s money ever sitting in the company’s bank account.

Payments are processed, and then tutors paid in the background, with no additional company oversight.

Why have you built this?

We have developed this feature for a few reasons. First and foremost is to make sure that our UK based companies operating as Employment Agencies can comply legally with the 2020 High Court ruling EWHC 2461, which states that it is illegal to be in control of the compensation due to tutors (self-employed or otherwise) that you introduce to clients unless your company (and not the tutor) is providing the tuition service – in which case you have to charge VAT on the tutor’s part of the fee in addition to your commission.

In layman's terms, this means that if you want to act as an Employment Agency, with your tutors acting as self-employed contractors, you must not be in control of the money they are receiving. You cannot collect money from the client, then pay it on to your tutor.

Further details on the ruling can be found here:

https://www.bailii.org/ew/cases/EWHC/Admin/2020/2461.html

The Split Payments feature complies with the above ruling, by removing the necessity for the tutoring agency to ever handle money. Compensation is split between tutors and the agency at the moment of payment, all need for control over funds is removed. Further details of this are included below.

In addition to complying with the above ruling, Split Payments also makes tutor payroll operations and costs obsolete. Tutors collect their earnings when the client pays, so there won’t be any more need for managing monthly bank transfers. Even if you’re not a company that acts in a way that would be affected by the ruling, this feature will make receiving money and paying tutors much easier!

NB: It’s important to note that, as this ruling shows that an agency cannot control the compensation being received by the tutor, taking prepayment for lessons using Credit Requests will not be adhering to the ruling.

How sure are you that this workflow suits BEIS's requirements?

This workflow has been walked through with BEIS, who have approved it. However, if this solution is abused in any way, there is a risk that approval is revoked.

The most important thing is that companies who are currently not compliant (IE companies that are using self-employed tutors and are in control of the compensation going to the tutor) should show that they are acting to change their business model.

If the industry shows a willingness to change then we should all stay happy; BEIS have no interest in putting down an industry.

Is there an alternative to using Split Payments?

In simple terms, there are 2 models you can follow as your business. You can continue as an Employment Agency, in which case our solution is the only one we're aware of, or you could change your business model to become an Employment Business, which would mean your tutors would be employed by you. You would have to pay VAT on the full amount instead of just your commission.

When do I have to become compliant by?

BEIS are giving the industry sufficient time to change their business models. They have agreed to a deadline of 31st December 2022, by which time all companies need to be operating as either of the two permitted options outlined above (Employment Business, or Employment Agency).

How does it work?

In order to make this feature available to companies, we have had to build an entirely new integration with Stripe, based off of Stripe’s Express Accounts.

This means that your company will have to change your current Stripe integration to a new Stripe Express account. Read more about what this means for you below under the heading “How will this affect my dealings with Stripe?”. Migrating from an old account to a new one is easy, instructions are provided below.

All of these Stripe accounts are ‘Connected’ to one main Stripe account, operated by TutorCruncher. When payments are made, they are made into our account, then immediately split between tutor and company. Both parties will have Stripe Express accounts, which will show inside TutorCruncher. After the allotted payout time frame, (7 days for companies, on the last day of the month for tutors), both parties will then receive funds into their bank account. Tutors will also be able to create a manual payout up to once a month whenever they wish.

The payment order that the tutor receives will be automatically generated and sent to them whenever an invoice for a lesson or expense is raised.

How will this affect my workflow?

There are few small points in which your workflow will change here.

You will have to make sure all the tutors who are self-employed contractors have their own Stripe Express Accounts. You will be able to view this on their profile, and filter by tutors who have or have not done this.

When drafting invoices, you will be clearly shown which invoices will be paid using Split Payments and which will not.

Payment Orders will be generated and sent, and the money will be transferred automatically, so that should be a huge time saver!

As explained above, companies acting as Employment Agencies are now allowed to be in control of any compensation due to the tutor. Because of this, Split Payments will not be suitable for taking pre-payment for lessons. Split Payments will only work for billing in arrears (referred to in TutorCruncher as invoices). It will not be possible to use Split Payments with Credit Requests.

How will this affect my accounting/invoices/payment orders?

This is quite an important section, so please make sure you understand it.

For invoices generated and paid this way, the PDF document associated with the invoice will show how the payment is split between the company and the tutor, as per the example document below. This is a change to the current setup, under which the tutor can view the breakdown.

We understand that having the client receive a document attached to their payment request email outlining the 2 different types of charges may not be what your company wants, and could be confusing to the client. After all, most of the time a client just wants to know how much they are being charged.

Last year we implemented functionality that allows you to turn off the PDF attachments for your invoice payment request emails, which means you can customise who receives the attached documents and who doesn’t. Note that if clients do need to view the actual invoice, they can still login to TutorCruncher and view them there, provided you haven’t disabled that option in Settings under ‘Client Login’.

By default, the invoice payment request email will tell the client how much they owe, and include a link to pay it, so the only thing they will be missing is the attached PDF document.

As you, the company, will be receiving your commission from the client directly, payment orders will no longer show the breakdown of how much the client has paid and the company is receiving.

How will this affect my dealings with Stripe?

You will not have your current Stripe account linked to TutorCruncher anymore. Instead, you have a new Express account that’s ‘Connected’ to a TutorCruncher one. This means that all payments are made through our account, and all customers are saved to our account.

The Express account is much more limited compared to the normal account, you will only be able to view a select few things. More information can be seen here:

https://stripe.com/docs/connect/express-dashboard

We aim to make as much of what you need available in TutorCruncher, and we ask that you bear with us as not everything will be available immediately. As per usual, we will always take feedback on board.

You can still keep your current Stripe account if you wish to use it with other services.

Will all my payments have to be processed this way?

We advise that any work you do that involves a tutor as a self employed contractor, teaching a private client in the UK, is done through Split Payments, as it seems to be the only legal route.

We understand that a lot of work falls outside of this workflow, such as teaching in schools or LEAs, in which case you can choose whether to use Split Payments or not. You will be able to decide this on a per client basis as well as a company basis.

However, in order to use any Split Payments, you will need to move to having a Stripe Express account instead of your current Stripe Account. This is because we cannot support one company using two different Stripe workflows on the one account.

How much will it cost?

As mentioned above, if your company decides that you have to use Split Payments for any charges, then you will need to switch TutorCruncher from your existing Stripe account to a new Stripe Express account.

All payments processed through Stripe Express accounts will be charged at the following rates, including TutorCruncher’s fee. Whether or not you use Split Payments, the pricing for processing payments through Stripe will all be under this pricing structure.

The pricing for this functionality will be slightly different to the current payment plans, as the Stripe charges are complex and we wanted to simplify everything.

If you are on a Pay as you Go tier, then any payments taken this way will cost 2.65%* of the amount charged. If you are on a Startup tier, then any payments taken this way will cost 2.3%* of the amount charged.

This is the entire cost, there’s no price per payout/payment etc. For clarity, here’s some tables comparing the cost before to the cost after, based off the average payment value put through TC in 2021 of £160:

Pay as you Go

Startup

If you are on an Enterprise plan please get in touch to discuss how your plan will work.

As the figures above show, the cost of an average payment has gone up a very small amount, and now you have access to automated payouts to tutors.

Any payments processed through the other payment methods (GoCardless, cash, etc) will all use the pre-existing pricing structure.

*American Express

American Express cards are much more expensive to process, and after a lot of brainstorming we thought of 3 different ways of recovering the costs for this: 1. We could charge extra for just American Express payments 2. We could lift the price of all payments to spread the cost 3. We could deny any American Express payments.

Ultimately, we decided that giving end clients the choice on whether to accept these cards or not would be up to the company, so there will be an extra 2% charge on American Express payments.

In the future, we will build the ability for companies to deny payments from American Express cards in TutorCruncher, as we appreciate you do not always have control over clients.

What payment methods will be accepted?

Currently, only payments made through a Debit or Credit card will work with Split Payments. Stipe are currently building Instant Bank Payments (related to the recent questionnaire we sent round, more details here), and we hope to make this method available in the next 3 - 6 months.

Who pays the transaction fee?

The transaction fee is deducted from the company’s share of the payment. This is the same as for TutorCruncher’s prior billing. We will not at any stage charge the tutor for the transaction. This matches the current workflow, where the fee is a cost of sale for the company.

When do we receive our funds?

The first payout for every new Stripe account is typically paid out 7 days after the first successful payment is received. After that, companies will receive funds into their Stripe account after 3 business days. Once funds are in your account, we will transfer them to your company’s bank account 7 days later. You will be able to view the payouts in TutorCruncher, so you can see when you are scheduled to receive money.

When do tutors receive their funds?

Tutors will typically receive their funds into their Stripe account after 7 calendar days. While the payment is being processed the tutor will receive a notification telling them the money is on its way, and be able to view this from within their Stripe account (accessible from within TutorCruncher).

Once the money is in their Stripe account, payouts will automatically happen on the last day of the month; this can be changed by the tutor. Tutors will also be able to create a 'manual' payout once a month to their account. We can't allow any more than that unfortunately as Stripe charge us per payout and the cost becomes too great.

How will refunds work?

Refunds can be processed currently through TutorCruncher, and they will continue to work with the following logic. Please note this only applies to invoices that have been paid using Stripe.

We’ll use an example here, in which there is a lesson being charged to a client, where the lesson is charged at £65, £40 going to the tutor and £25 going to the company. If a payment has been made less than 7 days prior (which will mean the tutor will not have the funds available in their Stripe account), then a refund will be given to the client from both the tutor and the company.

For example, the invoice is paid on the 20th February. Payment is split, so the tutor will receive the funds to their Stripe account in 7 days, and the company will receive their funds in 3 days. On the 21st February, you realise you need to refund the amount. Once you select to Refund the invoice in TutorCruncher, the payment that was on the way to the tutor will be reversed back to the client, as will the amount going to the company.

If, however, the invoice is paid after the tutor has received their funds, then the money will be taken from the company’s Stripe account.

For example, the invoice is paid on the 20th February. Payment is split, so the tutor receives the funds to their Stripe account 7 days later, and the company will receive their funds 3 days later. On the 1st march, you realise you need to refund the amount. Once you select to Refund the invoice in TutorCruncher, you will be told that the tutor has already been paid out, so you will have a choice whether to cancel the refund or fully absorb the cost of refunding the client from the company’s Stripe account. If you do not have funds in your Stripe account to pay this out, then the refund will fail.

We cannot offer fee refunds for payments that have been processed and refunded to the client as Stripe still charge their fee.

How will chargebacks work?

Chargebacks, which are different from refunds, will be dealt with on a case by case basis to begin with. You as a company will have to submit evidence (if you deem it necessary) to prove the charge was legitimate, and then if the decision is made against you, we will charge the full amount to the company plus Stripe’s chargeback fee (£15.00). There is no way to charge this to the tutor.

Will I retain my current customers’ details in Stripe?

Simply follow the migration process below to migrate your customers’ details to your new Stripe account.

How can I migrate from the current Stripe system to the new one?

We’ve made this as easy as possible for you.

Simply contact support@tutorcruncher.com (or open a support ticket inside TC) to get started. We'll enable your new account and get in touch with Stripe to start migrating your customers’ details. This can take Stripe up to 10 business days to complete (though usually it's far quicker), so we can get other things sorted in the meantime.

Sign up to a new Stripe account from inside TutorCruncher (it will be the option for “Card Payments with Stripe (Express)” under Settings). This doesn’t change anything about how payments are processed, the final ‘switch’ is done in the last step.

When this is completed, your tutors will now have the option to sign up to a “Payouts account” on their profile. They will need to sign up to an account before you will be able to handle a Split Payment involving that tutor. Again, them signing up to the account doesn’t change any aspect of how payments are currently handled.

When Stripe have transferred your customer data to the new Stripe account, we will be touch to arrange a time to switch from the legacy payments logic to the new one.

Once that is complete, payments will use the new workflow, which changes nothing for your customers, apart from the fact that you will now have the option to use Split Payments for lessons where a tutor has signed up for their Payouts account.

How will this affect my tutors?

Tutors will have to sign up to a Stripe Express account, which is available on their Dashboard as soon as you as a Company have added your Stripe Express Account. Signing up takes ~5 minutes for tutors, so you shouldn’t see much pushback here.

What other information do I need to be aware of?

All charges processed through Stripe will be under the umbrella of TutorCruncher’s Stripe account, which means we have to be selective about whom we allow to use Split Payments, and how much money they can process. We have therefore added restrictions to all new accounts that limit the amount of transactions through Stripe they can process, until we get to know the company a little better. These limits will affect new customers, companies that we have worked with for some time will not be affected. Your account limits will be available to view in TutorCruncher.

Get in touch if you have any other questions

We understand that you may still have questions we haven't answered, so just get in touch using our contact form, or open a support ticket inside TutorCruncher.