What is a brand charge and could it be on your restaurant bill soon?

As of today, restaurant workers will now keep 100% of all earned tips, following new tipping laws in the UK.

The Employment (Allocation of Tips) Act 2023 requires employers to pass all tips, gratuities and service charges to employees without any reductions. If this is breached, workers will be able to make a claim through an employment tribunal.

However, businesses could potentially make matters murkier by replacing regular service charges with “brand charges”, but is this a legal practice?

What is a brand charge?

A brand charge is a fee that was made infamous by London-based Chinese Dim Sum restaurant Ping Pong to cover “additional costs related to operating a franchised brand”. 

The business scrapped its regular service charge and banned card tips in April 2024, replacing them with a 15% brand charge. The business argued this was an effort to increase staff wages.

“The benefit to our employees will be stability of wages throughout the year, reducing the impact of seasonality and the higher wages will also mean improved access to financial products such as loans and mortgages,” Ping Pong said in a statement. 

“With a fairer wage structure in place, our customers should not pay any extra service charge or tips. To achieve this change, we need to increase revenue by 15%.”

Ping Pong’s CEO, Art Sagiryan, also criticised the government’s new tipping laws, saying that it had “completely ignored the huge costs that are related to operating the new system”.

“Everyone in the industry is waiting to see who does what,” Sagiryan told The Times. “There will be people introducing cover charges, there will be people introducing higher bills or menu prices, and we in the interim are trying to decide where we will go.”

Are brand charges legal?

As the Allocation of Tips Act is new, it isn’t yet certain whether a brand charge will be compliant with the new regulations.

But while Ping Pong claims the additional charge will benefit its staff, others have been quick to criticise its decision.

Unite the Union organiser Bryan Simpson said: “Ping Pong’s decision to effectively deny workers tips by cynically changing the service charge to a ‘brand charge’ in order to circumvent the new fair tips legislation is one of the most blatant examples of tips theft that we’ve come across as the union for restaurant and bar workers.

“No matter what senior management calls it, customers will assume that this 15% is a tip that should go to workers, but it won’t. That is completely disingenuous.”

Similarly, Martin Kuczmarski, founder of Italian restaurant The Dover, doesn’t believe that exchanging tips for a higher wage will be beneficial for workers.

“On service charge, there’s no National Insurance. Say I am a waiter on £16, £17 an hour, including the service charge,” he told The Standard. “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.”

Will brand charges appear on your bill?

So far, Ping Pong has been the only UK restaurant to officially introduce a brand charge. However, as the new law comes into effect, more restaurants could enforce similar fees to compensate for giving all tips to staff.

James Lewis, Marketing Director at Gauthier, said: “I do think we are going to see different businesses being creative as they try to steady their ships in any way they can.”

Moreover, the number of cost increases currently faced by the UK’s hospitality sector could be a likely reason for these additional charges. 

A survey by UK Hospitality revealed that many businesses saw sharp increases in wages (95%), food (89%), insurance (84%) and energy (57%). The need to fill staff shortages – reported to be 48% higher compared to pre-pandemic levels – will also likely mean new charges will be needed to pay new employees, especially considering the industry’s current shortage in meeting pay expectations.

Additionally, with customers becoming more budget-conscious due to the cost-of-living crisis, more restaurants are facing challenges in cost control, profitability and generating revenue. Therefore, with all tips going towards staff, they will likely need to find a way to make ends meet and make up for those profit gaps.