Rulings on tips draws mixed feelings from the industry

15 May 2009 by
Rulings on tips draws mixed feelings from the industry

The Government's ban on the practice of topping up minimum wages with tips has been welcomed by the unions, but operators have condemned its timing, says Chris Druce.

Last week the Government confirmed that the practice of making up minimum wage with tips would be outlawed in October, despite industry pleas for a delay.

Although the decision will have surprised few, the timing will anger operators who are battling furiously to keep their heads above water duringthe recession.

The announcement means that all staff must be paid a salary of at least the national minimum wage - £5.80per hour from October for adults aged 22 and over - with tips on top.


The British Hospitality Association (BHA) estimates this will cost the industry £450m, threatening 45,000 jobs. Italian restaurant chain Carluccio's, for example, is thought to be facing a bill of about£1m to make up the shortfall.

But these figures have been disputed by the Department for Business, Enterprise and Regulatory Reform (DBERR), which has put the cost at just £92m or 0.5% of the wages bill of the companies affected.

DBERR claims its estimate is more accurate because it isbased on a survey of 140,000 workers, a larger sample than the BHA's survey of 40 companies.

Standing by his association's estimates, BHA chief executive Bob Cotton, while acknowledging the need for transparency, remained unrepentant.

"This is not the time to introduce a measure that will increase the industry's wage bill so significantly," he said.

These pleas over the timing of the new legislation have fallen on deaf ears, much as the industry's argument over the rights and wrongs of the practice did in the first place.

In many ways, it was a PR battle that the industry was never going to win. On one side, you had the unions and mainstream media arguing that, while the practice might have been legal, it certainly wasn't ethical. Customers, said union Unite, were effectively being "ripped off" by employers, as were waiting staff.

The BHA and industry supporters fought back with a rather cold justification for the practice, based around a tax argument, which, in the age of the soundbite, simply didn't sway public or political thinking.

While the industry was arguing that some staff may lose out as national insurance doesn't apply to tips, campaigners were revealing that some high-profile restaurants were paying staff as little as £2 per hour -or, in one case, no basic salary at all.

Judges are rarely viewed as having their fingers on society's pulse, but summing up his decision in the long-running Annabel's tips case, also announced last week (see page 7), Court of Appeal judge Lord Justice Rimer caught the prevailing mood.

"Many would see no injustice in this," he said. "They would wonder why employers should be entitled to use discretionary tips - probably intended by most customers to go direct to the staff - to satisfy their obligations to pay the national minimum wage."

Understandably, the unions and consumer groups also welcomed the decision.

Derek Simpson, general secretary of Unite, said: "Hard-working waiting staff will be delighted to learn that bad employers can no longer line their pockets with the money that customers intended to go to workers."

Elizabeth Carter, editor of The Good Food Guide, said: "When you leave a tip for good service, you expect it to be used to reward the staff that served you. Restaurants that use tips to replace wages are not only cheating their staff, but also misleading their customers."

This is not exactly the sentiment the industry wants to be generating in a month where figures for the first quarter of the year showed that restaurant insolvencies were raising at "an alarming rate" (Caterer, 8 May, page 7).


But not all of the industry is against the changes. The Federation of Small Businesses (FSB), which has more than 2,000 restaurant members, mainly independents, welcomed the decision. A survey of its members last year found 99% did not use tips to subsidise wages and 85% were in favour of changing the legislation.

An FSB spokeswoman said the decision wouldcreate a level playing field for smaller restaurants to compete against the chain operators.

"Members' restaurants are typically smaller and attract fewer customers - and therefore fewer tips - than the chains, which means they can't afford to make up staff wages in this way," she said. "The Government's decision will remove an existing barrier stopping small business competing with big business and we welcome it."


Will I need to change my salary rates?

Any employees currently paid below minimum wage will need to receive a pay rise by 1 October.

Can I still retain a proportion of tips to help me meet my costs?

Yes - both the Government response and the Annabel's judgement have confirmed that payments of discretionary service charges and tips paid by card belong to you and that you can continue to use them as you see fit.

What will my extra costs be?

In addition to the increase in wages there will also be extra employer national insurance payable by businesses on the higher basic wage.

Should I just shut down my tronc (the system for handling tips)?

No - that will just put more money into the hands of HM Revenue & Customs and hurt employees even more.

Source: Vantis Group

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