Tip or not to Tip – HR update

Do you leave tips in cash rather than pay the discretionary service charge routinely added to restaurant bills?

A cash tip is often regarded as the best way to ensure that a waiter is rewarded for good service. While the money may end up in a tronc which is then distributed among waiters, front of house and the kitchen team, most customers accept this as being fair.

However, a lot of customers pay the bill, including the service charge, with a card, and in recent weeks it has become clear that many of them have assumed that, even when paying by card, the service charge goes to staff. The issue of tips hit the headlines after Unite highlighted its members’ concern about an 8% administration fee Pizza Express applied to tips made by electronic card payment. The story was picked up by the media and there were a number of negative reports about the practices of other restaurants followed.

Most tips are employers’ property. The row has highlighted the confusion among customers about who is entitled to service charges as some employers use tips and service charges to bring earnings up to the national minimum wage. Although the law changed in October 2009 banning employers from using tips to pay basic wages, it did not prevent them from withholding tips and service charges from staff.

Legally, tips and gratuities paid to an employer (for example, on credit card as a percentage of the bill), rather than in cash to a worker, are the property of the employer, which does not have to pass them on to staff. However, an employer may agree to pay some or all of those tips and service charges to a worker. The employer may also choose to deduct a proportion to cover credit card and banking charges, payroll processing costs, and things such as breakages and unpaid bills; indeed, the BIS voluntary Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges contains a number of examples of deductions which range from 10-30%.

Employers:  If your staff receive some of their wages in tips make sure that your tip policy and payments are open, transparent and reasonable for employees and customers alike.