I can still remember the awkwardness when, as a waiter, customers would ask whether the tip they were leaving would go to myself and the other staff, and I would have to smile back and say, in the most positive and upbeat tone I could muster, ‘most of it’.
For the best part of a decade, I worked for a restaurant group that used to pocket a certain percentage of all gratuities left to staff via card payments. And we’re not talking two or three percent here to cover credit card fees, I mean a proper chunk of change. At one point the company, which will remain nameless, was understood to be taking up to 15% cut of staff tips.
It was only really in the years since I swapped my career working in restaurants for one writing about them that I was able to process just how much bitterness and mistrust in the industry I harboured as a result of that charade. And I’m unlikely to be the only one. Data published in a report commissioned by hospitality technology specialist Three Rocks back in June revealed that two thirds (63%) of businesses were taking a percentage of tips from employees. Of them, 29% said they used tips to cover costs such as processing fees, while over a quarter (28%) took a profitable share of the tips. Not a great look for an industry regularly bemoaning the struggles of finding and retaining staff.
Working in restaurants is a hard job at the best of times – it’s rigorous, fast paced and very demanding, with long hours and often limited wages. Throw in a monthly 15% cut to your tips into the mix and it isn’t long before you begin to feel undervalued.
All of which brings me to the Employment (Allocation of Tips) Act, which finally came into force this week. The Act, which has been rumbling through Parliament for the best part of three years, makes it unlawful for businesses to hold back service charges from their employees, ensuring staff receive all of the tips they have earned. According to Government estimates, £200m a year will go back into the pockets of staff by retaining tips that would have otherwise been deducted.
For me, the Tips Bill represents a crucial and significant step forward for restaurant workers and the industry in general. It marks a move away from the ambiguity around how tips and service charges are managed and provides a chance for the industry to provide better transparency and build greater trust, not just with its frontline staff, but also with the diners they serve. I’m not alone in this view: last month, RSM UK’s Consumer Outlook survey of 2,000 consumers found that 80% of consumers think that 100% of tips and service charges should go to staff.
The introduction of the Act does bring some concerns, though. Much has been written about the prospect that, amid higher minimum wage costs and ongoing food inflation, some restaurants may be forced to raise prices. Businesses that have been using the service charge to pay staff or to partly offset their wage bill will feel its effects.
Then there are those who have attempted to circumnavigate the new legislation. London-based dim sum chain Ping Pong faced scorn earlier this year when it scrapped service charge and replaced it with a discretionary 15% ‘brand charge’ to fund wage rises for all of its restaurant teams. The group said its decision to ditch a tronc-based service charge was brought on by the tipping legislation and claimed that the move meant its teams would benefit from increased company wages that ‘matched earnings they would have received with service charge distribution’.
Ping Pong has since quietly rowed back on its brand charge and instead adds a ‘discretionary service charge’ of 5% to bills, all of which is distributed to staff through a system they control. “All of our staff are paid above the national living wage before counting any tips or service charges you choose to pay,” it says.
It's a key lesson that rather than trying to game the system, operators would be better served by simply embracing the new legislation. It rights one of the restaurant sector’s greatest wrongs and should be celebrated for doing so.
