Restaurants and tips have long had a murky, muddled relationship. The theory is simple: the bill is for the food, the tip is for the staff who’ve served it.
More or less, it worked out like that when tips were entirely discretionary — when people left cash, or scribbled a few quid on the tab. But it hasn’t played out that way for a long time, since bills started to arrive with the optional-but-not-really 12.5 per cent service charge ready and waiting. Card payments could be kept by businesses, which some did as a way to add a little shine to their profit lines. In 2009 and then again in 2016, how restaurants divvied up these charges suddenly came under scrutiny, with Pizza Express, Bill’s and the Côte chain all coming under fire for allegedly dipping their hands into the waiters’ pot. Running costs were usually offered as justification.
The latest place to come under fire is five-strong dim sum chain Ping Pong, which yesterday announced it was banning card tips altogether, replacing them with an optional 15 per cent “brand charge”, to go towards “additional costs associated with operating a franchised brand and delivering the dining experience to brand standards.” Eventually, Ping Pong say, this charge will “be incorporated into the menu prices and will not be charged for separately” — meaning it won’t be discretionary at all.
From the outside, it appears to be how the group hopes to circumnavigate an upcoming change in law. The Employment (Allocation of Tips) Act 2023, which comes into force from July 1 this year, will make it illegal for operators to hold back any tips or service charge from their staff. They must be passed on in full, without deductions, and the government say this will put somewhere in the region of £200 million more into workers’ pockets.
Ping Pong’s chief executive, Art Sagiryan, is not a fan — telling the Times that the change “completely ignored the huge costs that are related to operating”. But industry insiders are unsure whether Ping Pong’s new charge will even be legal under the new law. There is a need for clarification from the Government on what exactly the new law encapsulates — and whether Ping Pong can simply sidestep it with a clever name change, or not.
“I’m pretty sure if this went in front of some sort of employment tribunal, it would be struck down as not in the spirit of the legislation and a deliberate misinterpretation of the law,” says Victor Garvey, of Sola in Soho. “It’s interesting the mental gymnastics people are doing to get out of paying everything to staff. Regardless of how laws were written, the intent, I believe, has always been for all service charge to go to the staff.” At Sola, “every cent” of the 20 per cent service charge is passed on to staff, Garvey adds.
But could this be how restaurants attempt to dodge the legislation? “I do think we are going to see different businesses being creative as they try to steady their ships in any way they can,” says James Lewis, marketing director of Gauthier.
When service is good, most like to reward the staff, and few would be happy knowing their tips were helping a chain get richer at the expense of its team
Kate Nicholls, UK Hospitality’s chief executive, told the Standard that she was unable to comment on an individual business decision. But speaking generally, she said: “Existing consumer law is very clear that you need to be transparent with consumers before they enter premises on final pricing. You need to make clear what any charges are being levied for, and you need to be transparent with customers and staff how any discretionary service charges are given to staff. It’s incumbent on all operators that all staff and the customers know what is happening with these charges and where they are going.”
Many diners are likely to be confused by Ping Pong’s decision — when service is good, most like to reward the staff, and few would be happy knowing their tips were helping a chain get richer at the expense of its team. Ping Pong say the charge has allowed them to give staff a pay rise that means their standard earning match what “they would have received with service charge distribution”. Staff now earn a minimum of £12.64 an hour, up from £10.42 in April. A change, but minimum wage went up to £11.44 an hour in April anyway. It seems unlikely that staff would have earned only £1-an-hour in tips.
The move was described as a “a complete slap in the face” for workers by Unite Union lead organiser for hospitality, Bryan Simpson, and it is hard to believe Ping Pong staff will be better off with the extra £1 in their pocket as opposed to the tips they formerly received (the chain say they would pass on 90 per cent of it). Martin Kuczmarski, founder of the Dover, disputes the idea that swapping tips for a higher wage is beneficial for staff. “On service charge, there’s no National Insurance. Say I am a waiter on £16, £17 an hour, including the service charge. If you pay me exactly the same amount per hour but with less coming from the service charge, I am worse off in my pocket, and this is what I care about as an employee.”
“It has to be distributed, 100 per cent, to all of the team,” he told the Standard. “At the Dover, whatever the customer pays is passed to all the members of staff, from kitchen porters to chefs to the bartenders to everyone who is involved in service. It’s very transparent, it’s divided between everyone.
“A lot of restaurants make excuses — commission, admin fees. But it’s called service charge, and service is done by members of staff, so it must all go to them.”
No-one should be able to get out of paying what they owe simply by rebranding a tip as, in this instance, a “brand charge.” It is morally suspect.
Some others, though, say the new law does present challenges for operators, in an industry where margins are often extremely tight already. “The new legislation is well thought out to bring bad operators and poor practise into line,” says James Robson, the restaurateur behind Fallow. “The good companies used to take a percentage between two and four per cent to manage service charge. The issue is some huge chains and poor operators were abusing this and taking 20 to 100 per cent, which they now thankfully cannot do.”
But, Robson adds: “It does, however, marginally penalise good quality operators in the process.” How so? “For example, American Express charge up to 4 per cent on every penny you spend with us. We therefore get £96 for every £100 paid. Under the new legislation, we have to pay out every penny on the bill, so are now at a company loss when distributing service charge.” He estimates the change will cost Fallow and its two sister restaurants a total of some £100,000 a year.
Is the upcoming law overzealous, then? “In my opinion, for the nearly 30 years I’ve worked in restaurants whether it’s in the office or the kitchen, this industry has done a very good job of protecting and providing for its staff fairly against consistent difficulties and with little or no government support,” Gauthier's Lewis says. “A few big chains have abused a system and this is not right, however I don’t believe restaurants in general need any more intervention or regulation. In my experience, 99 per cent of staff are very happy with the system that’s always been in place.”
It’s true, too, that some operators have historically held back tips with good intentions — for instance, to ensure staff get similar rates of pay throughout the year, rather than, say, a spike at Christmas and next to nothing during January and February. But it's clear, too, that the law has been brought in to protect workers whose tips are unfairly taken from them, and no-one should be able to get out of paying what they owe simply by rebranding a tip as, in this instance, a “brand charge.” It is morally suspect.
The bottom line, says the Devonshire’s Oisín Rogers, the law is changing for the better. “I think the government are right in this case. Service charge should always go to team doing the work in the restaurant. It shouldn't affect the profitability of a restaurant. We've always operated things in that way.”
