WHY RESTAURANTS ARE pushing for more regulation on how they handle employees’ tips. By David Burrows
It's not often that a business sector will push for red tape, but that’s exactly what the British Hospitality Association is doing. The BHA wants a new law to ensure restaurants and hotels provide clearer information on tips and service charges. Its deputy chief executive has also admitted that the voluntary code isn’t working, with companies hiding their policies on websites.
The voluntary code to disclose tipping and service charges has been in place since 2009. But while the BHA, which represents 40,000 establishments, claimed that “many” of its members have signed up, a figure was not available. Whether the BHA is calling for mandatory rules because its code has been poorly received is therefore hard to say.
More likely it could be that many were being backward in coming forward. The association’s deputy chief executive, Martin Couchman, speaking at Food Matters Live in November, said the companies that have been challenged publicly were abiding by the code but the disclosures were often “hidden” on their websites.
The BHA wants restaurants to disclose the following, by law:
- Whether an amount is deducted for handling costs (and how much).
- How the remainder is shared between the restaurant and the employees.
- The broad process for distribution – for example, that they are shared between the employees in the restaurant through a system controlled by a representative of the employees.
Ufi Ibrahim, the BHA’s chief executive, said recently: “Although restaurants are legally entitled to deduct administration costs from service charges, for example, we think it’s important customers understand exactly how much is deducted and why.”
The proposals have now been submitted to the Department for Business, Innovation and Skills. The business secretary, Sajid Javid, is sifting through them alongside other evidence as part of an investigation to determine whether the ministry needs to intervene. “When a diner leaves a tip, they rightly expect it to go to staff. In full. I’m concerned about recent reports suggesting some restaurants pocket tips for themselves. That’s just not right,” Javid said.
That the government is taking an interest is hardly surprising. What it doesn’t want is the public backlash to result in all tips being paid in cash – money that HM Revenue and Customs has very little chance of seeing.
In recent months, campaigners for workers’ rights have shone the spotlight on some legally sound but ethically questionable practices. Service charges usually go into a “tronc”, which is distributed among waiters, front of house and the kitchen team, allocated according to arrangements agreed by the staff.
However, some major high-street chains take a chunk of staff tips as an admin fee for running the system. This can be up to 10% of the tip, according to some reports. What’s more, a service charge may be added which never finds its way to staff, while some waiters and waitresses are made to pay back up to 5% of their sales even if they made no tips at all.
While the latter is likely illegal under the National Minimum Wage Act, there is nothing to stop companies taking a cut from tips. The government’s code of best practice on tips, first published in 2009, has the following example: “For every £1 received in card tips, the staff keep 70p, 10p covers business costs and administration and 20p goes to the business [this includes deductions for breakages, till shortages and walk-outs.] All cash tips go to staff.”
Pizza Express has already ditched its 8% charge after pressure from campaigners and the media. Its chief executive, Richard Hodgson, said: “We have always been, and will continue to be, transparent about our tipping policies. We also agree with calls for greater clarity across the industry in order to ensure that staff are given a fair deal, and to enable customers to make an informed choice when it comes to tipping.”
Vanessa Rapier, the chief marketing officer of the Restaurant Group, recently told the BBC that “the industry would really benefit from some clarity around tipping policies” but banning them wouldn’t work because tips provide an incentive to staff.
In the US there’s the start of a movement to discourage tipping, however. The Hospitality Included project at the Modern, a New York fine-dining restaurant, will see the gratuity line removed and menu prices rise instead. Food could cost 15% to 21% more, according to some reports, with staff pay increasing.
The benefit is that employees receive a higher basic wage, which is steady from month to month. The counter-argument is that they end up with less overall if the establishment is frequented by keen tippers (similar moves have also been at high-end establishments). With Rapier’s comments in mind, is there also the chance that service levels will fall if there’s no fiscal incentive?