Viewpoint: Transparency is the only way we'll see acceptance of the service charge

27 January 2017 by
Viewpoint: Transparency is the only way we'll see acceptance of the service charge

The hospitality industry should act first before the government feels it must, says Peter Davies, managing director, WMT Troncmaster Services

For those of us working in the sector, the economic clouds already on the horizon (thanks to rises in business rates, the National Living Wage and the fall in the exchange rate) mean this knee-jerk reaction to a tipping controversy is the last thing we need.

Of course, it's not really about tipping, it's about service charges. As everybody within the sector understands - and almost nobody outside it - tips and service charges are not the same thing.

It's worth taking a moment to remind ourselves exactly what service charge is. It is part of the overall cost of delivering a meal which the customer is invited to pay.

In return for giving this discretion to the customer, the tax system gives valuable benefits to businesses, employees and customers - less VAT and National Insurance. Businesses keep their costs down, staff take home more pay, and the cost to the customer is lower than would otherwise be the case. In addition, if the service charge is paid, then no further tipping is expected.

There's a fundamental truth to remember here too. Every penny a restaurant has, and every pound its staff earn, was paid by its customers. Call it pricing, call it service charge, call it tips - the customers paid it.

What needs to be made clear to the great British dining public is that a service charge, when coupled with a fair and ethical tronc system, is the best deal for all concerned. Most businesses do just this. They don't use service charges to pay the minimum wage, because that's illegal.

An average waiter in a fine-dining restaurant in London takes home an additional £900 per year thanks to service charges and tronc. If we abandon the current system, that cost (and all the extra taxes that come with it) will be passed on to customers - the same customers that are facing all the other price rises that are to come.

But we've undoubtedly passed the stage where just hoping this message will be heard is enough. I think it's time for the sector to make a grand gesture to demonstrate that the majority of businesses are playing fair. That gesture should be an across-the-board move to transparency for diners and staff, in advance of any potential legislation.

This would mean every menu stating exactly what proportion of tips or service charge are kept by the business to cover costs, and whether the balance is managed through a tronc system or by the business.

Remember, it is legal to use service charge to pay salaries above the minimum wage - but customers don't understand or like it. Only through transparency will they be reassured that a business is playing fair.

The alternative is we do nothing and every couple of months we face a new "shock, horror" headline. That route, in my opinion, will bring the sort of government intervention that nobody wants - one that could ultimately result in the end of a system which serves businesses, their staff and their customers well.

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