Government to consult on banning deductions from employees’ tips

But hospitality employers may face ‘secondary consequences’ if costs rise

Employers in the hospitality industry are to be canvassed by the government about potential changes to the tipping process in cafes and restaurants that could end the practice of making deductions from employees’ additional earnings.

Business secretary Sajid Javid has announced a consultation into the way companies charge and distribute discretionary customer payments.

Proposals put forward in an outline document include preventing employers from making non-tax related deductions from service charges, and banning them from suggesting specific values for such charges.

The move is a response to widespread negative publicity last year over the deduction of administrative fees of 8-10 per cent from customer tips at Pizza Express and other restaurant chains. The practice is legal, and many of the employers said the charges were a way of covering the costs of pooling and distributing tips. There will be concern in some quarters about any additions to the overall salary bill at a time when the impact of the national living wage is being felt across the sector.

The British Hospitality Association’s government affairs director, Vernon Hunte, said his organisation welcomed greater clarity of where tips ended up. Last year the trade body called for new laws to force employers to tell customers what happens to service charges.

But he added: “If you change the way things are handled, there will be secondary consequences. We want to get an understanding of the impact of the proposed changes – that will be our priority over the next few weeks.”

BHA chief executive Ufi Ibrahim said this week that restaurants should have to provide a written notice explaining exactly what happens to voluntary charges. “Customers should be able to reward good service and know where their money ends up and how much of it goes to the staff,” she said.

The government’s consultation, which will run until 27 June, sets out options for meeting three broad objectives: making it clear that tips and service charges are voluntary; making it clear where these payments go; and ensuring workers get a fair share of the money raised.

A call for evidence last year received nearly 200 responses, with broad agreement that current practices were not clear for either employees or consumers.

The government said that while unions and other employee groups had asked for a requirement for 100 per cent of tips to be paid to workers, and the majority of customers would prefer to see this, employers were “more supportive of retaining the current treatment of discretionary payments for service; maintaining their flexibility to reward workers but increasing the transparency of actions”.

Hunte added that certain charges are deducted by outside bodies, such as credit card firms.

Javid said: “We’ve been very clear. As a one-nation government we want workers who earn a tip to be able to keep it. That’s why I, like many others, was disappointed by the tipping practices of some of our well-known chains. This has to change.

“I’m setting out our proposals to make tipping fairer, clamping down on unfair practices and securing a better deal for the millions of workers in the service industry. We will look closely at all of the options, including legislation if necessary.”

A voluntary code of practice was introduced in 2009 to improve the information available on tips, gratuities and service charges – and how they differ from cover charges, which are mandatory and must be stated on a menu.

One option outlined in this week’s consultation is to place the code of practice on a statutory basis, meaning it could be taken into account in certain tribunal proceedings.

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