Viewed by the trade as yet another potential ‘burden’, the government is proposing legislation intended to keep unscrupulous businesses in the hospitality sector from pocketing a share of their employees’ hard-earned tips. Nick Hughes reports
It won’t be the most significant bill passed during this session of parliament – that would be the EU (Withdrawal Agreement) Bill – but a government plan to legislate for fairer tipping practices in the foodservice and hospitality sector promises to shake-up a system that has long been a source of confusion and contention.
The proposed scope of the Employment (Allocation of Tips) Bill was set out in the recent Queen’s Speech. Its aim is to promote fairness for workers by creating legal obligations on employers to pass on all tips to workers in full and, where they distribute tips among workers, to do so on a fair and transparent basis.
The government says not only will it give workers a fair deal, it will also create consistency for businesses who already distribute and pass on tips to workers in a fair and transparent way. It adds that the bill is set to benefit more than a million workers, many of whom earn the national minimum wage or national living wage.
Tipping practices made headlines again last month when The Sunday Times reported that waiting staff at the Italian restaurant chain Carluccio’s are revolting over a new tipping policy that reportedly hands a greater share of tips to managers. Before the changes, waiting staff received 65% of credit and debit card tips, the rest being shared between kitchen and bar staff. Now, tips are divided according to the number of hours worked, with managers also receiving a share of the pot.
Some staff complained of a cut in real pay of up to £400 a month, prompting Unite – the UK and Ireland’s largest union representing hospitality workers – to declare that customers would be “outraged” by the practice.
Carluccio’s chief executive Mark Jones, however, defended the policy, which he said was “one of the fairest in the industry'', was devised by the restaurant chain’s independent committee, and did not result in any profit to the company. “We don’t put a service charge on our food, and our customers are free to leave cash,” he told the paper, adding that the company’s tipping policy was posted on its website.
We’ve been here before, of course. A series of revelations in 2015 that some employers were legally deducting an administration fee from customer tips paid on a credit or debit card, typically between 8-15%, prompted the government to launch a call for evidence on the issue of tips, gratuities, cover and service charges that found that around two-thirds of employers in hospitality were making deductions from staff tips, in some cases of around 10%. Over two-thirds of respondents to a subsequent consultation advocated that tips belong to staff and employers should not be involved.
A fair tips bill has been mooted ever since, but only now has it made it onto the parliamentary agenda. In a briefing that accompanied the Queen’s Speech, the government noted that most employers already pass on tips to the staff who earn them; however, it suggested that a minority of employers “exploit their staff” by retaining the tips they earn.
It warned that unfair tipping practices could become more entrenched as consumers increasingly pay tips on card via employers, rather than in cash directly to the workers. Government estimates suggest that nearly 80% of tips are now made on card.
Responses to the proposal largely reflect the stance stakeholder groups have adopted throughout the lifespan of this debate. UKHospitality chief executive Kate Nicholls says legislation on tipping “threatens to add another unwanted burden on businesses at an already very hectic time”, adding that any new measures need to have full input from the hospitality sector, the businesses that will be affected.
On the other side of the fence, Dave Turnbull, officer for hospitality at Unite, says the union, which has waged a long-running campaign for fair tips, will be “scrutinising the bill to ensure it represents the actions needed to stop greedy bosses pocketing people’s hard-earned tips”, adding that “the devil will be in the detail” of the legislation.
That detail has yet to be fully fleshed out, but one issue of contention is likely to be around the definition of what constitutes passing on “all tips to workers in full”. As yet it is unclear whether this means 100% of what is paid by consumers or 100% of what is received by businesses after costs. Nicholls points out that deductions are sometimes made to service charges as businesses are charged by banks in order to process payments. “If the full amount is to be passed on, then hospitality businesses are going to be forced to foot the bill,” she argues.
In a recent blog post solicitors Amicus Law suggested that “the scope of the proposed legislation is likely to force employers to hand over 100% of the tips they earn”. This is likely to be controversial for another reason, as the firm explained: “Where the money is received by the employer then they will be obliged to deduct tax and National Insurance via PAYE. To hand over all the money would require a change in the tax rules and HMRC is not going to be particularly happy about that.”
A further government requirement is for an employer to follow a new statutory code of practice when distributing tips, which will set out principles of fairness and transparency. A voluntary code to disclose tipping and service charges has been in place since 2009, but it is widely considered to have been ineffective; so much so that in a rare display of unity UKHospitality joined forces with Unite in 2017 to create new guidance on good practice principles for fair tipping.
The guidance, however, focuses on the use of troncs – a common fund into which tips and service charges are paid for distribution among waiters, front of house and the kitchen team – and aims to make tronc schemes more independent and transparent. Unite says it doesn’t go far enough in addressing wider issues around tipping practices, nor the lack of transparency that continues to confuse diners and workers alike.
Businesses wise to the fact that a lack of clarity around tipping is breeding consumer distrust have recently taken matters into their own hands. Last year, leading operators asked Peter Davies, managing director of WMT Troncmaster Services, to put together a statement of what good tipping practice looks like. In a recent blog for the Sustainable Restaurant Association, Davies wrote that a view has been allowed to take hold within the dining public “that there is something dubious or underhand about the whole affair”.
The industry hopes the antidote to such cynicism is FairTipShare, a new kitemark scheme launching in autumn 2019 to demonstrate the good practice that exists in the UK hospitality industry, covering restaurants, bars, hotels, pubs and other businesses where customers choose to leave a tip or pay service.
The scheme is built on 11 key principles for what is widely accepted as good practice for the distribution of discretionary payments, as well as how they can be handled legally, fairly, transparently and ethically. Members will be able to display the FairTipShare logo telling consumers that their policies and procedures have been independently vetted to ensure they comply with the scheme’s standards, with additional detail and information available online.
“As well as reassuring customers, being a kitemark member will also indicate to staff – both current and potential – that a business treats its staff fairly and should be ‘an employer of choice’,” wrote Davies.
On the question of what “all tips” actually means one of the principles states that: “The costs of collecting, processing, administering and distributing tips and service charge to staff (collectively known as administration costs) generally do not exceed 5% of the tips and service charge collected. With the exception of these costs, businesses should make 100% of the funds available to the tronc system to allocate to the members.” It remains to be seen, however, whether a cap on the level of administration costs recouped by employers is a compromise position all parties can agree on.
Above all else, the principles emphasise the need for greater transparency so that consumers are left in no doubt as to where their money is going. Davies wrote that “the overwhelming majority of hospitality businesses have always operated in a way which most would consider fair”, but noted that “complications occur due to laws around legal ownership, taxation and who should get what. As a result, many businesses have decided that it is better to say nothing unless prompted.”
Such silence will no longer be a viable option once the bill makes its way into the statute book. By seizing the initiative with a scheme of their own, businesses will hope this is one regulatory curve they can keep ahead of.