Should the UK government ban restaurants from taking staff tips?

Restaurant owners will be banned from deducting money from tips earned by waiters and other staff, UK Prime Minister Theresa May said on Monday, backing a proposal first made by Unite the Union almost two years ago.

payment for services gratuity bill

Theresa May said she “wanted to ensure that everyone is treated fairly in the workplace,” following a series of revelations that many restaurants, from high street chains to Michelin-starred venues, are skimming tips from their service staff.

The reactions from either side of the restaurant business have been mixed.

According to the government, Belgo, Bella Italia, Cafe Rouge, Giraffe, Prezzo and Strada all deduct 10%, and Ask and Zizzi 8%, although some are already in the process of changing their policy. At the other end of the spectrum, Michel Roux Jr admitted that Le Gavroche keeps 100% of the service charge added to bills instead of distributing it amongst employees back in December 2016, days after being forced to publicly apologise for not paying staff minimum wage.

We’ve rounded up the reactions from the general public and hospitality industry in the aftermath of the announcement that the government intends to ban restaurants from taking a percentage of their staff’s tips.

The punters

Hours after the announcement, YouGov created a poll to get a clearer view of the public consensus, and the vast majority of Brits voted in favour of banning tip skimming.

Nearly 68% of the public supports a legal ban on restaurants taking a share of tips and service charges, rather than passing them directly to staff. Only a fifth (19%) of the public oppose this proposed change.

Those in the youngest age group, perhaps unsurprisingly, are the least likely to support it. 62% of 18-24s support it, against almost three quarters (73%) of 50-65s. Meanwhile, those living in the south of England and Sclotland were most likely to support the new legislation, with 71% voting in favour, compared to 65% in the north and in London.

“There are some that would argue that a lot of staff members go into making a meal, and a night to remember for customers, not just those in charge of serving,” Richard Moller, YouGov’s director of consumer research, said.

“Tipping can often be a worrisome issue, with customers often anxious about how much to tip, and if the person that served them will miss out on the tip altogether. This is often brought into greater focus when paying for the meal, and the gratuity, solely on card.”

The hospitality groups

The hospitality groups and their advisers, meanwhile, were less impressed.

Paul Newman, head of leisure and hospitality at tax consultancy RSM, welcomed the move to ban tip skimming, but said the issue is more complicated that restaurant managers simply taking their employee’s extra cash away.

Newman argued that “restaurants were only following the Government code of best practice and that in most cases the deductions were made to offset their own costs.”

He said that, as well as credit card costs, owners also need to consider fees incurred by running a separate payroll. The Treasury requires that Pay as You Earn (PAYE) tax and National Insurance Contributions (NIC) are deducted on staff payslips. Where NIC is payable, the restaurant is charged 13.8% of the employee’s salary.

Many restaurants, he said are able to avoid the 13.8 per cent charge by paying the tips through a “tronc scheme – a common fund into which tips and service charges are paid for distribution to the staff.”

“In such cases, NIC may not be due, but restauranteurs still incur the credit card charges and continue to be obliged to operate a separate payroll system to deduct PAYE tax.”

“In the spirit of fairness to restaurant owners and to avoid further unfair and ill-informed comments, we can only hope that when amending the rules the Government takes the opportunity to reduce restaurants’ costs by including a payroll exemption for all tips and to consider issuing a new code of best practice.”

UKHospitality — which represents the interests of the UK’s hospitality sector and whose business partners include major brands like Diageo and Molson Coors, called the tipping proposals an “unnecessary burden.”

UKHospitality Chief Executive Kate Nicholls said: “The hospitality sector took immediate voluntary action to improve transparency and address concerns around the treatment of tips when the issue was first raised. UKHospitality and Unite have developed an industry Code of Practice which deals with the fair distribution of tips among all staff, not just waiters. As a result, best practice has been widely promoted across the sector.

“Some smaller businesses may retain a small proportion of tips to cover the costs of credit card charges and processing payments – but this is a small amount and the practice has been approved by Unite. At a time when costs are mounting for operators in the sector, the Government must be careful about introducing additional legislation. There is no evidence that further legislation, which may have unforeseen consequences for staff, is necessary at this time.”

The industry

Well done on new restaurant tips legislations coming into force soon!

Shame on restaurateurs and chain restaurants who do not share / give service charge to their staff! Service charge should be scrapped off completely and tipping decision left to guests only! #today

— Damian Wawrzyniak (@ChefConsultant) October 1, 2018

Some restaurant owners, including House of Feasts owner and chef consultant Damian Waryzniak, suggested that service charges should be scrapped altogether, and the tipping decision left entirely to customers.

He added that chain restaurants: “should show how they exactly divide service charge, every single penny should be transparent.”

Most ‘chains’ have cleaned up their act, the bad publicity is not worth it. There is a bigger question here around independents (particularly fine dining) establishments charging ‘service’ and taking the lot, which is very common. They’re the ones that can hide from it.

— James Hacon (@jameshacon) October 1, 2018

Meanwhile, James Hacon of ThinkHospitality said the problem is not as much with chains as “independent (particularly fine dining) establishments charging ‘service’ and taking the lot, which is very common.

“They’re the ones that can hide from it.”