A former palace aide told Fabulous Digital that around two weeks before Christmas, the Deputy Master of the Household tells the entire staff to gather in one of the state rooms at Buckingham Palace.
Staff from maids to accountants to footmen line up to receive a gift from the Queen herself.
"She says a few words to each of them – usually something like 'Thank you so much for all your help during the year, followed by Happy Christmas'," said the aide.
"If the staff are not able to be there on the specified days – they may be a ghillie working at Balmoral for example – the Household makes sure they are sent to them, along with a card from HM.
"The presents are usually a book token or a small piece of china from the palace gift shop, and most years she gives them a small Christmas pudding in a box as well."
The Royal Household website reveals that 1500 Christmas puddings are given to staff, palace police, and Court Post Office workers - all paid for out of the Queen's own pocket.
"An equerry will be standing beside her with a list, from which he will quietly whisper the name of each recipient as they step forward, just as they would at a palace investiture ceremony," explained the aide.
A card from the Queen and Prince Philip goes with each pudding. The Queen sends out a total of 750 Christmas cards a year, given to world leaders, UK notaries, and the heads of Commonwealth countries.
Until recently, the Queen would have a personal Christmas shopping spree with Harrods bringing items to the palace for her to look at.
But now the gifts are all chosen online by staff in the private secretary's office, said the aide.
"Chosen stores – principally Harrods and Fortnums – would send vanloads of stuff for her to look at.
"All the items were put on display on tables in two big room at Buckingham Palace."
But now the gifts are all chosen online by staff in the private secretary's office, said the aide.
"It was like her very own royal shopping mall. But it's not done now, it's one of those things that she doesn't really need to expend her energy on as she gets older."
The Palace would not give further comment on the Christmas gifts, saying details cold be found on the Royal Household website.