House rules: Does the industry need tips regulation?

11 November 2018 by
House rules: Does the industry need tips regulation?

The government has announced new legislation to govern the way tips are distributed. But a lack of detail has left the hospitality industry confused. Neil Gerrard investigates if it is necessary and what can be done to prepare

If prime minister Theresa May's announcement that the government would be introducing "tough" new legislation around restaurant tips left you scratching your head, then you weren't the only one.

That was about it, however. There was little explanation as to what shape the legislation would take and, in some quarters, it raised more questions than answered (see panel).

The news about the legislation caught those who would normally be in the know about such developments on the hop. Kate Nicholls, chief executive of UKHospitality, said the only indication her organisation had that legislation could be on the way was the government's consultation on tips, service charge and tronc, announced in May 2016 under the then business secretary Sajid Javid, to which it responded at the time. "Since then - and having worked up an industry code with Unite the Union - we had prompted government a few times to assist in launching the code more publicly but had not received any active responses," she says.

This has led cynics to suggest that perhaps the Conservatives simply wanted a voter-friendly policy (one unrelated to Brexit) to grab some positive headlines ahead of any eventual general election. After all, Labour leader Jeremy Corbyn had already pledged to introduce similar-sounding legislation if his party were to be elected, making it illegal for businesses to take a cut of tips paid by debit or credit card or charge waiting staff to work.

Nonetheless, the government appears to be committed to the idea, despite the general lack of detail. But is it necessary, and what can the hospitality industry do to prepare?

shutterstock 529412755
shutterstock 529412755

Javid's original review into tips, service charge and tronc was prompted by a series of negative headlines in the press, often involving casual dining groups, running back to late 2015. Among them, restaurant chain Côte was accused of "misleading" customers by taking the 12.5% service charge instead of giving it to staff. The company said it used the charge to pay staff above the national minimum wage, although it later asserted that the entire service charge was redistributed to employees.

A short time afterwards, Las Iguanas and Turtle Bay came under fire after it emerged front of house staff were being forced to "pay to work" with a charge of 3% of the table sales they generated on each shift paid to their employer, which was supposed to come out of their tips. The brands later dropped the policy.

Under pressure from the press and unions, many companies subsequently chose to change their practices. For example, Pizza- Express dropped an 8% administration charge it levied on tips made by electronic card payment. More recently, TGI Fridays has introduced a tronc committee made up of 12 employees to decide more fairly how tips are shared, following strike action by Unite members in its workforce and a consultation with its wider team.

"When the consultation ended in 2016, the government said it had a couple of principle objectives, which was greater transparency and greater fairness in terms of the money going to the people to whom it was intended," says Peter Davies, managing director of WMT Troncmaster Services.

"Over the last couple of years there has been quite a lot of movement from within the industry to try to address these points. It would be wrong to say that everyone has done that, but as a general rule, there has been a shift towards having tronc systems run in a way that is a bit more open. Businesses are saying: 'OK, we will retain what we need to cover our costs and no more.' Generally, 5% was a good rule of thumb for what it cost. There were many businesses which historically had legally kept a larger share of the money that decided maybe it wasn't tenable anymore."

In addition to individual companies changing their stance, industry-wide initiatives such as UKHospitality's Code of Practice on tipping and service charge, developed with Unite, sprang up. The code provides businesses with best practice advice to deliver flexible tipping structures, based on the principles of transparency, fairness and accountability.

Initiatives like this are a more effective solution than new laws, Nicholls argues. "Hospitality businesses have worked together voluntarily to produce the code and we hope that this, rather than unwieldy legislation, is sufficient to address concerns that the government, or the wider public, have about tipping."

Howard Field, business adviser and editor of HOSPA's guidance on tips and troncs in hospitality, also appears to view legislation as an unwelcome option: "There is a danger that if the industry doesn't have a proper way of presenting the case, legislation might actually make the whole situation worse and we just carry forward a situation which is of no benefit to anybody," he says.

Meanwhile, Davies points out that consumers are already able to go to Trading Standards if they are unhappy with the way a business is handling tips, and employees already have recourse to employment tribunals if they feel they are being treated unfairly.

"There is a risk that if the legislation is poorly drafted, we could end up in a situation whereby we have a lot of extra cost for not a huge amount of benefit because most businesses are not that far off giving all of the money they get after costs to their staff anyway," he says.

So, what to do in the meantime, while we wait for more detail from the government? UKHospitality asserts that its code of practice is not undermined by the legislation and advises businesses to continue to abide by it. In the meantime, Nicholls urges the government to "keep any disruption to a minimum".

Meanwhile, Davies hopes businesses will be more transparent to both staff and customers about what they do. "Certainly, none of the businesses I deal with day to day have any dirty secrets. But the problem is that because nobody says anything, it allows those few bad examples that have been highlighted to tar everyone with the same brush. Businesses have got to be more proactively transparent and that will dispel a lot of the myths," he says.

He is also working on plans for an industry kitemark scheme - the idea being that based on how the law eventually turns out, businesses can display their kitemark to consumers to show that 100% of tips and service charge after costs goes to staff.

In the meantime, until the government releases more detail on what is likely be involved in the legislation, forewarned is probably forearmed. The general advice is to deduct only what your business incurs in costs, to be open and transparent, and to follow industry guidance to ensure that whenever the law does come along, you find yourself on the right side of it.

What do we know about the new legislation so far?

When The Caterer contacted the Department for Business, Energy and Industrial Strategy (BEIS) for more information about the government's plans for its proposed new legislation on tipping, a spokesperson directed us to a press notice issued alongside Theresa May's announcement. It read: "While most employers act in good faith, in some sectors evidence points towards poor tipping practices, including excessive deductions being made from tips left by customers."

A spokesperson also parroted business secretary Greg Clark's original statement, which read: "This legislation will ensure workers get the tips they deserve and give consumers reassurance that the money they leave in good faith to reward good service is going to the staff, as they intended - ensuring that hard work is rewarded."

However, the department has declined to offer further details. It said: "We will publish full details of the legislation, including provisions for employers to distribute tips among their staff. This measure will be introduced in due course."

In the meantime, some key questions remain unanswered:

1 Why is meant by "tips"? Cash tips? Tips paid by card? Or perhaps both tips and service charge, which along with troncs was part of the government's eight-month-long review led by Sajid Javid? The Caterer asked for clarification, but a spokesperson said they had nothing to add at this stage.

2 May said "workers" should receive all of their tips. Large sections of the media took the term "workers" to mean "waiters", but it has the potential to refer to all sorts of other roles such as chefs, KPs, receptionists, supervisors, managers and even owners of small businesses. What is meant by a "worker"?

3 What is meant by "all of their tips"? While the answer to that question appears simple, of the £12.50 service charge a customer pays on £100 bill, a business may only receive £12.18 after a card company charges its merchant fee. Does the £12.18 received by the business count as "all" of the service charge, or the £12.50 originally paid by the customer?

What operators think

Emma Underwood, restaurant manager, Stem, London

"There is a lot of confusion with tipping. When guests pay service charge and when they question us about it, they will often ask 'does it all go to you?'. We will always respond that yes it does, because it does all go to us, but it goes to the whole team, not just one individual. We use a tronc system here, but we don't talk about how the tronc system works. I think it would be confusing to people.

"Everyone is happy with the system we are using. I think that the main problem with service charge is that guests don't fully understand how much money it takes to run a restaurant. The costs are absolutely massive and no one is charging enough for it. I think that is the main crux of the issue."

John Martin, owner, Dough and Brew, Warwick

"For us, other than more paperwork, it makes no difference. 100% of tips go to the team, shared equally by hours worked with all staff. I would imagine it is mainly about tax…Having the ability to track cash tips and claim tax, rather than making sure it's fair for the people.

"We don't advertise it, but if customers ask, we explain that even the cleaner gets a share. It's split by the hours worked, so those who work quieter shifts get properly rewarded. Few customers ask unless it's been in the news. It's the automatic, across-the-board service charge that should be banned."

Will Beckett, co-founder, Hawksmoor

"Tipping is messy but fundamentally people like it. Some people are abusing, not the law, but the commonly accepted principles of how it works. There is a feeling [among customers] that: 'I want the money to go directly to the person into whose hand I put it'. What is difficult is the assumption that the waiter who brings you your bill at the end is the only person who merits getting that tip. Chefs, bartenders, runners - all sorts of people contribute meaningfully to whether you had a good experience in a restaurant.

"My view is tips should all go to staff and they should be spread among those who are involved in service. Should there be legislation? I don't know. There isn't enough detail. Can I still make sure that our chefs receive the service charge that all the team believe that they deserve? I don't know. They haven't bothered addressing that."

Peter Kinsella, owner, Lunya Manchester, Lunya Liverpool and Lunyalita Liverpool

"We support the government plans. We never take tips from staff anyway, they are shared out by everyone who works for us at each site from all the kitchen staff to all those waiting on the floor plus admin support staff as well.

"Broadly speaking, we don't like the idea of tipping as it de-professionalises the industry. You wouldn't leave a tip to someone helping your mum or dad in a care home. Plus, often people feel embarrassed into leaving one. Perhaps as the living wage rises the public might stop feeling so embarrassed. The whole notion of the tip also creates simplistic stories in media around staff having to survive on tips from poorly paid work. That's not the case with many award-winning operators in the industry, including ourselves."

Adam Handling, chef owner, Frog by Adam Handling

"I don't think legislation is necessary as all tips should always go to staff. I don't think it should just go to the people who serve the food - there are a lot more people involved. When someone asks me about tips, I'm an open book and my company is an open book. We explain service charge and where it goes. We do run a tronc system. Living in London is expensive, so we do a guaranteed package for all of our staff. In doing so, kitchen porters make £23,000 a year because they are guaranteed X amount of service charge.

TGI Fridays' appointment of 12-person tronc committee 'warmly received' >>

New legislation to ban businesses from taking deductions from tips >>

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