Why your waiter might still not get their tip

This week, a law change has come into effect that should be positive news for workers. Whether a cash tip or a service charge by card, service staff will now receive all tips from customers under a new Act that bans firms from withholding the payments.

The Employment (Allocation of Tips) Act 2023 has been hailed by many as long overdue. To patrons, the idea that bosses would take their employees’ tips may have been shocking.

Yet the practice was actually commonplace. Before yesterday’s law change, just one third of hospitality organisations were estimated to give 100% of service fees to the server. The majority instead put the funds towards ailing balance sheets or topping up low staff wages.

Some were simply bad actors. Others were cash-strapped companies struggling to stay afloat. Experts are now warning that firms have already responded to the Act with policies that might undermine the employee protections, or hit customer wallets.

Bryan Simpson, lead organiser for hospitality workers at the Unite union, described the law change as “welcome”. However, he added, “there are national employers out there who have already brought in policies that will see workers lose out of tips.”

They might introduce new charges

Businesses that had taken a portion of service charges will likely have relied heavily on the funds. Customers typically pay 10% on top of their bill, which represents a considerable portion of revenue and a big loss for employers post-Act.

Some have decided to insure themselves against the loss. Before the law came in, many bars and pubs said they would push up service fees to build up their cash reserves. Others have introduced new charges that they will not be legally obligated to pay to staff.

For example, Ping Pong, a restaurant in London, banned service fees in April and swapped them for a 15% discretionary ‘brand charge‘, three months before the law came into effect.

Customers have complained about the fee. But the company says staff have received a pay rise to match what “they would have received with service charge distribution”.

Speaking to the Guardian at the time, Simpson was scathing about the new charge: “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,” Simpson said. “That is completely disingenuous.”

They could pit staff against each other

A murky area in the Act is whether or not bosses should give service fees to kitchen staff. The law says an employer must ensure that tips are allocated fairly between workers.

Some might assume this means an equal split between staff members. But the new Code of Practice states that “fairness” does not necessarily refer to how the funds are portioned out. 

Instead, it instructs companies to ensure that all individuals working at the place of business are aware of and have clear access to an organisation’s tipping policy.

Ministers say the Act ensures that those who do the work earn the reward. That leaves questions about how this will impact back of house (BOH) staff. Could kitchen workers see their tips reduced if a firm decides that front of house (FOH) staff are more deserving?

Last year, it emerged that steakhouse Miller & Carter was asking wait staff to pay up to two per cent of the sales they serve out of their tips to give to the kitchen, bar and management. The decision meant that some workers ended up owing money at the end of their shift.

That is an extreme case of how a business decision can impact employees’ earnings. But depending on how a firm defines “fairer” tipping, BOH or FOH staff could end up losing out.

They could collect tips themselves

The new Act defines service fees as anyone who provides a service to customers. As a result, it could end up being the boss who lucks out from the legislation.

Managers or pub landlords can be required to step in and wait on tables or serve drinks on busy shifts. Under the new law, this makes them legally entitled to dive into the tip jar.

Pizza Express uses a tronc scheme to share tips between staff members. As reported by The Guardian, waiters at the chain will now have to share their cut of the service charge with higher-paid shift managers for precisely this reason.

They’re likely to raise prices

We’ve seen how companies might adapt their tipping policies to respond the new laws. But another (and arguably most ethical) response from businesses could be to raise prices.

Without service fees to subsidise overheads, menus charges could be bumped up by a few quid to protect profitability for bars, restaurants, and other establishments.

Research by software brand three rocks®, found that 52% of hospitality firms planned to raise drinks prices by 10% this year to make up for the lost revenue stream.

Conor Sheridan is CEO of restaurant management software, Nory. Sheridan describes a “growing concern” that the Act may lead to higher menu prices.

“Margins are already razor-thin, and with this new law in place, businesses can no longer rely on tips to plug the gaps”, he says. “The restaurant industry needs to evolve to a place where operators feel confident in charging enough to cover all their costs.”

Fairer future

Admittedly, this has been a cynical look at how large service chains have responded to the Tipping Act. It is worth acknowledging that small firms crippled by high overheads or even facing closure, might need to make tough decisions that could hurt employees.

Teething issues will emerge in the coming months, but in the long-term, the hope is that the new Act will lead to fairer pay practices in the restaurant industry.

“For too long, there has been ambiguity around how tips and service charges are managed,” says Sheridan. “[The Act] marks a significant step toward ensuring greater transparency in hospitality, not only for consumers but also for the frontline workers.”