The UK is changing laws around tipping and service charge fees
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The UK hospitality sector faces a major shakeup as new tipping laws come into effect this week, sparking debates over fair pay and service charges.
As of Tuesday, October 1, restaurants, cafes, pubs, hotels, taxi firms, and hairdressers will now be legally required to hand over all tips and service charges directly to their staff, whether paid in cash or by card.
New tipping laws require businesses to hand over all tips and service charges directly to staff
This legislation, set to boost earnings for around two million workers, follows years of exposes highlighting unfair tipping practices, particularly where employers were deducting money meant for waiting and kitchen staff from customers’ payments.
Many businesses have already started adjusting their tips policy, but others have resisted the change.
One London chain, Ping Pong, controversially introduced a “brand” fee to avoid passing on the service charge, even before the legislation came into effect.
Meanwhile, luxury chains like The Ivy Collection have opted to increase workers’ hourly pay rather than passing on service charges, creating a disparity in how different companies handle the changes.
Businesses adjusted policies and increased hourly pay to keep service charge profits
Service charges can be a significant revenue stream, with some hospitality businesses adding up to 15 per cent to bills.
According to a 2022 UK Hospitality survey, up to 20 per cent of businesses were keeping a share of the service charge to offset their costs.
As this revenue disappears, businesses are left wondering how to balance their books, with many considering increasing menu prices or cutting costs to cope with the impact.
Kate Nicholls, Chief Executive of UK Hospitality, highlighted that many businesses have been preparing for this shift by adopting a code of best practices endorsed by unions, yet, some restaurants struggling with rising wages and inflation may be forced to take drastic measures to stay afloat.
Saxon Moseley, head of leisure and hospitality at consultancy RSM, warns, “Those that have been using the service charge to pay staff or to partly offset their wage bill are still going to have to pay their staff, but now won’t be able to draw on this cash fund. And in that scenario, margins will be hit, in some cases fairly drastically.”
Michael Powner, an employment partner at Charles Russell Speechlys, cautions that agreeing on a “fair” share of tips could lead to disputes, stating, “Employers need to ensure that what is agreed is ‘fair’ and that there is rational reasoning in place, while avoiding any potentially discriminatory rules.”
This includes delicate issues such as whether tips should be shared with employees on maternity or sick leave and for how long.
Unite union expressed concerns about business manipulation – acting in their own interests
The Unite union, representing hospitality staff, expressed concerns about businesses manipulating the new rules to suit their interests.
Bryan Simpson, Unite’s organiser, criticised some chains for appointing unelected individuals to head tip-pooling committees, stating, “We will be doing everything in our power industrially, politically, and legally to ensure that any unfair tipping policy is challenged.”
Pizza Express has found itself in the spotlight over this issue, where previously the company allowed waiters to keep 70 per cent of tips, it has now been reduced to 68 per cent, which will be shared with salaried managers who occasionally wait tables.
The restaurant operates a “tronc” system—a pooled tipping method—where tips are distributed based on a vote by a staff committee led by a “troncmaster.”
Kitchen staff currently receive 32 per cent of the tips. Pizza Express has committed to reviewing this policy every three months.
The owner of The Ivy reassured, “All cash or credit card tips are kept directly by the member or members of the team who received the tip,” but for many other businesses, the new law means they will have to reconsider their tipping practices carefully.
As the UK hospitality industry adjusts to this long-awaited legislation, it remains to be seen how these changes will impact prices, service quality, and ultimately, the workers who rely on tips to supplement their income.
