Why tipping in Britain is leaving a bad taste

PUBLISHED : Sunday, 28 December, 2008, 12:00am
UPDATED : Sunday, 28 December, 2008, 12:00am


Tipping in British restaurants has become as much a moral process as a financial one, with the plight of the country's most poorly paid workers at stake.

Few topics have irked diners more in the past few months than the ultimate destination of their gratuity. For years, patrons of British restaurants have been willing to fork out 10 to 12.5 per cent - even up to 15 per cent - as a discretionary service charge on their bill.

Most do it without thinking, particularly in expensive cities such as London where tales of paltry pay in restaurants are legendary. The presumption is that the money supplements the waiters' wages.

The charge is optional unless stated otherwise: if the service is not up to scratch, there is no legal obligation to pay. Few diners, however, realised this cash was being used to meet basic salaries.

The past few months have seen a string of restaurants exposed for paying staff less than the minimum wage, then topping up the salary with tips to meet the statutory requirement of GBP5.73 (HK$65.50) an hour.

Leading chefs have rallied behind the plight of waiting staff: celebrities such as Jamie Oliver, Marco Pierre White and Gordon Ramsay are some of the names putting their weight behind the issue. Hong Kong-born Alan Yau's restaurant chain, Wagamama, has also shown its support.

While eateries have been named and shamed, the brunt of the British public's outrage has been directed at the government: a loophole in the country's minimum-wage law has enabled the practice.

Ministers have pledged to tighten the law, while campaigners for restaurant workers have taken the crusade a step further. They are calling for legislation to force eateries to state clearly their tipping policy, giving a clear indication of what happens to discretionary charges.

The practice of using gratuities to raise low wages to the minimum threshold has become common practice in bars, cafes and restaurants around Britain.

This summer, the union Unite initiated a campaign to thrust into the spotlight the issue, which affects 250,000 workers. Most of these workers are migrants or immigrants and they are among the lowest-paid in the country.

Unite found that workers were often being paid just GBP2.50 an hour - well below the minimum - with the tips being used to bring the salary up to GBP5.73 an hour. Some bosses use tips to meet other costs, such as uniforms and breakage charges.

In one case a restaurant was found to be using its entire 15 per cent discretionary charge to pay staff, who received no basic salary at all.

There are tax benefits to tips for employers: if the charge is discretionary, it is free of value-added tax, which stands at 15 per cent. If it is a mandatory charge - usually the case in Hong Kong, for example - this is not the case.

In addition, if a cash tip is given by a patron to a waiter or waitress, it goes to the staff member free of National Insurance (social security) contributions.

With Britons spending GBP32.44 billion on food and drink in restaurants in 2007, tips are no trifling matter, as much as GBP4.86 billion a year. The sums involved have taken on a more acute edge as the industry suffers at the hands of the credit crunch.

Tightening the law to stamp out the process of topping up salaries with tips may be morally correct, but is going to come with a price tag, as Martin Couchman, deputy chief executive of the British Hospitality Association - the national trade association of the hotel, catering and leisure industry - explained.

'We are not opposing the measure itself; we made that quite clear to the government,' he said. 'But this is going to be quite expensive for those firms affected.'

The government has indicated that it plans to close the loophole by next October by tightening the 1998 National Minimum Wage Act.

With the catering sector already suffering from a downturn in consumer demand and Britain heading towards a recession, the outlook for restaurants affected is becoming increasingly grim. 'Unless we get an economic miracle,' Mr Couchman said, 'things are going to be pretty tough.'

The average restaurant chain could face increased costs of up to 10 per cent once the loophole is closed, according to PricewaterhouseCoopers. With the average base pay for waiting staff at GBP3.50 to GBP3.75 an hour, the cost of the change will be significant.

Wages usually make up about 35 per cent of a restaurant's costs. The danger is that with a credit squeeze, restaurants will be unable to pass along the cost increase to consumers in the form of increased prices.

The industry is just as concerned about the suggestions that restaurants provide information on tips on menus.

A consultation on the topic ends in February, and discussions have been taking place between the industry and the Department for Business, Enterprise and Regulatory Reform. The industry is expected to argue the information should be published on websites or on posters, rather than on menus.

Mark Holland, an officer with the general trade union GMB, said: 'It should be made absolutely crystal-clear to you where that money goes when you leave a tip.

'Consumers are being misled about where that money is going.'

In many cases, management will pool the tips and then decide how they are distributed. Moreover, it is not uncommon for management to charge an 'administration fee' for processing tips.

Most diners are oblivious, particularly as most pay by credit or debit card.

In this instance, the money is legally the property of the employers to dispose of as they wish.

By either using tips to pay basic wages or taking a slice of the gratuity pool, bosses have been earning money from their workers, Mr Holland said. 'It's big business for them now.

'Pay cash. Always pay cash, that's my advice. It always goes to the waiter.'

Bitter battle

Eateries have been named and shamed for paying staff peanuts, then using tips to bring the salary up to the minimum required by law

The statutory hourly wage is: GBP5.73

A union has found that workers are often paid: GBP2.50