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Restaurants could see costs rising by 10% after new tips rules

13 August 2008 by

Restaurant chains could see their costs rising by as much as 10% after the Government ruled that they will no longer be allowed to top up minimum wage with tips, a report predicted today.

This increased wage bill will impact waiting staff on an hourly wage, who typically make up around half of the employees in a restaurant chain, the report said.

With wages usually the biggest element of a restaurant's outgoings, making up around 35% of costs, the impact of the change in law will be to raise costs for the average chain by up to 10%, PwC predicted.

Andrew Garbutt, director at PwC, said: "Due to the consumer squeeze, chains are unlikely to be able to pass this cost increase on in increased prices.

"This is another thorn in the side of the hospitality industry, which is already facing a considerable headwind from the squeeze on consumer incomes."

David Trunkfield, director at PwC, said restaurant chains may attempt to keep a greater proportion of the service charge as an administration fee to try and compensate for having to pay the increased wages.

"This in itself may mean the whole ruling is seen as a red herring and could lead to no visible change at all, instead of being used to make up wages, tips could now be used to make up restaurant profits," he said. "However this may invite a consumer backlash."

Mixed response as topping up wages with tips is axed >>

FSB backs government decision to make it illegal to top up wages with tips >>

Government confirms staff must be paid minimum wage >>

Can we justify using tips to top up staff wages? >>

Read more on tip here >>

By Daniel Thomas

E-mail your comments to Daniel Thomas here.

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