The Tipping Controversy

The Tipping Controversy: The hospitality industry is almost unique in anticipating and / or expecting its staff to be additionally rewarded tips by its customers. This in addition to the purchase of food, drink and accommodation.

This is an historical reward and one that the general public acknowledges, but remains bemused and abused by the inconsistency of its delivery. There are many mixed messages. ‘12.5% will be added to your bill for tables of five and above’; ‘Service is at your discretion’; ‘All tips are shared between our staff, thank you’; ‘10% will be added to your bill’; ‘Service charge is not included’……….but we expect some recognition?

Those in the industry such as the independent restaurateur, hotelier and national restaurant chain operator are equally confused as to the correct and legal interpretation. There is no one fair and well-defined solution that serves all four parties well to the tipping controversy – the customer, the staff, the business owner and in the UK, the HMRC.

The Tipping Conundrum:

  • Every employee expects a fair wage, one that recognises hard work, skills and qualifications.
  • Every business is obliged to account and pay to HMRC all taxes and this includes the NI element of the wages and service charges collected.
  • The business if it ‘handles’ the service element of any income i.e. it simply banks the credit card payment together with the tip, must account for this element in Income Tax and NI and distribute it fairly between its employees.
  • For this administration there is a cost and this must be extracted from the ‘service’ income. It is this conundrum that is controversial. Just how much should the business owner / operator extract to cover their costs?

A Fair Tipping Solution:

  • The business should always pay at least the Minimum Wage and ‘service charges’ must not be a part of this.
  • If a business invites their customers to pay a service charge then either the customer-facing team must operate a Tronc system as advised by HMRC or the business owner must account for all taxes. The Tronc scheme shares out in pre-agreed proportions the service charge element and NI is accounted for independently.
  • If tips are freely given and are not requested by the Business owner in their literature then the owner ought never to get involved with taking or managing cash tips. The employees must be warned however that they must declare to HMRC independently, their additional cash earnings if outside of any Tronc scheme for Income Tax purposes.
  • The issue of credit card tips remain an issue. The costs to the business of administration must be covered but the fee must always be set low at a point at which the business does not profit. Service charges must be for the sole benefit of the hospitality team.
The Tip Solution

Thanks for the Tip

For further guidance refer to document E24 (2015) at www.gov.uk but any fine hospitality business will know that high staff morale ensures good service which in turn improves the customer satisfaction, staff retention and business security.

 

 

 

Posted in The Hospitality Business and tagged , , , , , .

Leave a Reply

Your email address will not be published. Required fields are marked *