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Restaurants may be forced to hand over all tips to employees, following government review

02 May 2016 by

Restaurants could be forced to hand over all tips to their employees according to new proposals outlined by the Government.

The proposals follow business secretary Sajid Javid's eight-month review of tips, service charges and troncs, and are intended to stop restaurants from using gratuities to top-up staff wages as well as making cover charges clearer to consumers.

The review of tipping practices, published today following a call for evidence on the matter, states that tips in restaurants, hotels and bars should go to workers and not their employers. It suggests that charges imposed on staff tips by employers should be scrapped or limited (except for those required under tax law), and that service charges on customers' bills should also be clear and voluntary.

The Government is also considering:

  • whether to ban or restrict the levying of table sales charges on staff - a fee paid by waiting staff based on their sales during a shift;
  • how to incentivise and increase the prevalence of well-managed tronc systems;
  • updating the current voluntary code of practice and putting it on a statutory footing to increase employer compliance

The proposals will now be put out for consultation, in a process that lasts until 27 June this year.

They come at a time when the industry is facing rising costs after the introduction of the National Living Wage (NLW) last month which saw minimum wage rise to £7.20 per hour for over-25-year-olds.

The ALMR said it had carried out a "detailed survey" of its 7,000 restaurant members last year as part of the Government's call for evidence and found "no evidence of abuse of the current system". Team members were actively involved in and supported the pooling and distribution of tips and no company was retaining the service charge in full or using it to subsidise low pay.

Nicholls concluded: "With the rise of cashless transactions, customers are increasingly rewarding good service through credit card payments. These have to be processed through the company payroll in order to ensure that tax is properly accounted for and paid - this is not the case with cash tips where the individual has to declare the tax and it is this which has led to some confusion and we welcome measures to increase transparency. It means that there will be a deduction, but it means that the tips everyone receives a fair share, including the tax man.

"No company should be profiting from tips and service charges, but equally no company - particularly small businesses - should be penalised for collecting and processing tax on behalf of the Government."

Meanwhile, Ufi Ibrahim, CEO of The British Hospitality Association (BHA) - which represents over 40,000 hospitality establishments in the UK welcomed the Government's consultation.

She said: "Transparency is precisely what we asked the Government to consider. Customers should be able to reward good service and know where their money ends up and how much of it goes to the staff."

"Over the coming few weeks, we will convene a series of meetings with hospitality business leaders across the UK and conduct our own impact assessment, to deliver a unified and robust response to inform the government's decision making process".

Previously, during the Government's 'call for evidence', the British Hospitality Association asked Business Secretary Sajid Javid to make it a legal requirement for restaurants to tell customers how tips and service charges are distributed among staff.

Ibrahim continued: "Many restaurant customers struggle to understand the difference between a tip and a service charge. What's more they aren't always sure what happens to the extra money they leave at the end of a meal. We believe restaurants should have to provide a written notice explaining exactly what happens to service charges and tips."

The Sustainable Restaurant (SRA) also welcomed the proposals.

Outgoing SRA managing director Mark Linehan said: "The UK dining public's attitude to tips and service charges is straight forward: it demands that staff are treated fairly and that restaurants are utterly transparent about what they are charging customers and where the money goes.

"When, in 2014, we asked consumers to identify the sustainability issue that mattered most to them when eating out, fair treatment of staff came out on top. Ensuring that staff who have contributed to a pleasurable dining experience receive all their tip is a key part of that fair treatment.

He added: "Restaurant customers crave and deserve transparency. Service charges are optional and discretionary and so a continued failure to match these expectations by communicating clearly, will be bad for business as, ultimately, diners will refuse to pay them.

"The Government's intervention is long overdue and we would strongly support any proposals that ensure a fairer regime for both waiting staff and diners."

Javid launched the investigation last August after some of the country's most respected restaurant chains were exposed for withholding some or all of the service charges from staff.

At the time, unions accused several restaurant groups including PizzaExpress, Bill's, Cote, Las Iguanas, and Turtle Bay of "misleading" customers over the level of service charge and tips they were withholding for administrative charges and other reasons. Many of them went on to remove the administration charge against electronic credit card payments in the wake of the publicity.

However there are many businesses in the sector that already ensure that all tips go to staff and run a well-managed tronc system. Speaking to The Caterer last September, Hawksmoor and Foxlow co-founder Will Beckett urged fellow restaurateurs to "be transparent" with customers over service charges and tipping, after two weeks of "really damaging" publicity for the sector.

"To people outside restaurants, I think it has suggested that this is an industry still where there aren't transparent, progressive employment practices, and that is really bad at a time when we have really just been getting up a head of steam about what a wonderful place to work this can be," he said.

Hawksmoor runs a tronc system and pays the entire service charge it levies on bills to its staff, aside from any administration fees charged by credit card companies.

"I feel like Hawksmoor - and by the way we are not the only ones by any means - is a company that demonstrably does very well but does things the right way. I feel that we have very clearly got our priorities with money a distance behind the people that work here, the restaurants that we open, the food and drink that we provide," Beckett said.

"We personally don't make any money from the tronc. We don't use any of the money to cover any of our staffing costs that might be incurred doing it, we just let the credit card company take the money they take and then we give every penny of the rest of it to the staff."

Publishing the report, Javid said: "We want workers who earn a tip to be able to keep it. That's why I, like many others, was disappointed by the tipping practices of some of our well-known chains. This has to change."

Javid said the Government would decide whether to make changes by revamping the 2009 code or, to give the rules more weight, enshrining them in legislation.

Commenting in The Guardian, Dave Turnbull, Unite's officer for the hospitality industry, said: "The problem has always been that tips paid on a credit card and service charges are deemed the property of the employer. Until staff are recognised as the lawful owners of their hard-earned tips with complete control over how they are shared out, rogue employers will continue to cream off staff tips.

Last week, Italian chain Zizzi announced it has cut the amount of tips paid to waiting staff and restricted lunch choices days after the introduction of the NLW.

The group will split service charge 50/50 between front of house staff and kitchen teams, where previously it was 70/30 in favour of waiters. Meanwhile, choices for free meals have been limited to margherita pizza or a pasta with tomato sauce.

The changes came after the introduction of the National Living Wage at the beginning of April, though Zizzi told The Guardian that the changes were not related.

In a statement it said: "Zizzi has supported the introduction of the national living wage from the outset, underpinned by its belief that its employees are an essential part of its business who should be rewarded fairly.

"As a result, Zizzi went beyond the government's requirements on 4 April by awarding additional pay rises to many of those who were already above the living wage, including chefs and managers."

Zizzi currently pays 100% of tips directly to restaurant teams, distributed by its tronc system.

In February, protestors targeted American-style steakhouse STK London within the ME London hotel on the Strand over claims that it was not fairly distributing cash tips to staff.

The group from the Unite union had organised a "Fair Tips" protest to take place at the hotel following allegations that the company was using the 15% discretionary service charge on customer bills to top up the salaries of four senior managers by as much as £50,000 per year each.

The British Hospitality Association (BHA) told BBC Radio 4's Today programme it would meet with hospitality business leaders across the UK and conduct its own impact assessment.

BHA chief executive Ufi Ibrahim said: "Empower the customer to know exactly what happens to tips should they choose to leave them. Ensure that they know they don't have to leave a service charge, that they could opt to leave a cash tip if they wish to. And let them know where that money is going. But what we need to do I think is to ensure that transparency is compulsory."

Zizzi to split service charge equally between waiting and kitchen staff >>

Protestors target STK and ME London over tipping policy claims >>

Leader: Let's be clearer with staff and customers regarding service charge and tips >>

Business secretary Sajid Javid orders investigation into tipping abuse >>

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