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Can we justify using tips to top up staff wages?

24 July 2008 by
Can we justify using tips to top up staff wages?

With two newspapers and a powerful trade union all demanding an end to the practice of topping up pay with gratuities to meet the minimum wage, the industry is beginning to wonder if the debate has reached tipping point. Chris Druce reports

The Daily Mirror, which has been backing the Unite union's Fair Tips campaign since April, probably wasn't best pleased last week when the Independent launched its own campaign on the issue. There is no doubt, however, that the debate has now got real momentum.

Since the front-page splash last Monday, a host of big-name chefs - including Marco Pierre White, Gordon Ramsay, Giorgio Locatelli, Antony Worrall Thompson and Mark Hix - as well as the UK editor of the Michelin guide, have thrown their weight behind the Independent.

The controversy is centred on the legal practice of employers taking a cut from credit card tips and, more damagingly in public relations terms, using tips to take hourly wages up the national minimum wage (NMW) - currently £5.52 for those aged 22 and over.

Pay cut?

Unions insist that this is a con because customers do not realise their gratuities are being used in this way. They also point out that employees are, in effect, taking a pay cut when they are on holiday or off sick.

The list of those tarred by the mainstream media is growing daily and reads like a Who's Who of the chain restaurant sector. Brands under fire include Hard Rock Café, Carluccio's, Ping Pong, D&D London, Café Rouge, Strada, Caffé Uno, Garfunkel's, Spaghetti House, Smollensky's, Gaucho Grill, Zizzi and Ask.

Last week saw Unite stepping up its Fair Tips campaign by targeting businesses in Manchester, the host city for the Labour Party Conference in September, while in London pressure group London Citizens staged a protest on tips outside Carluccio's in Canary Wharf.

The campaigners have generated enough momentum to get Whitehall interested. The Government has announced it is looking into the tips issue, while an Early Day Motion backing the Independent‘s campaign has garnered 52 signatures to date in Parliament. There's even talk of Labour MEPs debating the issue this September.

But is it as black and white as it seems? Research by the British Hospitality Association (BHA) found that the minimum waiters in London were earning was £8.50 an hour, which hardly puts them on the breadline.

Graham Turner, chief executive of Café Rouge and Strada owner Tragus, said the public needed to understand the practicalities of the situation. "The public is confused and we're working on improving communication," he told Caterer. "But part of this is about the Government levying a tax on tips - they're seen as taxable earnings - so this is how we deal with them as an industry."

Bob Cotton, chief executive of the BHA, which is in talks with the Business Department about the issue, pointed out that national insurance was another problem. "Outlawing such deductions could result in many waiters and other staff being worse off through losing the current exemption from national insurance contributions on tips," he said.

Peter Davies, consultant at business advisory firm Vantis, called on the Government for more support. "The tax system has pushed restaurants into adopting practices that bemuse and baffle customers," he said. "Unless the Government helps restaurants, they run the risk of solving one problem, only to replace it with another."

But the tax argument is unlikely to win over the general public, something noted by noodle chain Wagamama, which passes all tips to staff and doesn't levy service charges. It is so concerned about the fall-out from negative publicity that it is planning to include a line about its own policy when it next has its menus reprinted. Lisa Johnson, marketing director at Wagamama, told Caterer: "We want to make sure the customer knows that if they leave a tip it's going to staff."

Malcolm John, owner of Le Vacherin in Chiswick and Le Cassoulet in Croydon, described the policy of using tips to make up the minimum wage as "disgusting". John pays staff full NMW and asks his troncmaster to award "points" to employees based on their performance, before the restaurants' discretionary service charges are paid out to the teams.

Labour costs

Stephen Minall, managing director of consultancy Moving Food, said the debate should get the industry thinking about the real cost of labour, which, he argued, had been underestimated for years.

"A lot of analysts and the private equity companies that have invested in the high street have an unrealistic view of how much labour costs, looking at just 25% of total turnover in their books," he said.

Read more on tips at www.caterersearch.com/tips

Read more on minimum wages at www.caterersearch.com/minimumwage

The Tips debate in numbers

£5.52 - national minimum wage

£1.88 - hourly wage for a waiter at D&D London's Paternoster Chop House, according to the Independent

£7.45 - the London Living Wage, as calculated by the Greater London Authority

£8.50 - minimum hourly take-home pay for London waiters, according to the BHA

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