Government consultation on tipping

Following on from evidence gathered by the Government last year, the Department for Business, Innovation and Skills is currently consulting as to whether tipping should be subject to specific and targeted regulation.

The current position
Whilst tipping is an important part of many businesses in the hospitality sector, it also affects a number of other sectors in which discretionary payments are made, such as gambling and taxi operators.

Tipping is largely unregulated, with the Consumer Protection from Unfair Trading Regulations 2008 (which prevents misleading consumers) and the voluntary 2009 Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges the main sources of guidance for businesses. As the name suggests, the Code sets out some best practice principles to be followed. These focus on making tipping policies transparent to both workers and consumers. Other than confirming that tips are not considered when calculating whether staff are being paid the National Minimum Wage, the Code does not specify whether or not particular tipping practices are permitted.

Perhaps inevitably, there are a number of different practices under which businesses operate. In the restaurant industry, the most common are tips given without suggestion or demand, suggested service charges and mandatory cover charges. Furthermore, cash tips are often treated differently to tips paid by card. Of particular concern to the Government were reports of businesses charging employees an administrative fee for handling tips paid by card, retaining the whole service charge or requiring waiting staff to pay a percentage of the total sales at the table at which they are serving, on the expectation that such a payment would be recovered by the waiter or waitress through tips.

Given the Government’s concerns in relation to tipping practices and the lack of transparency to consumers and workers, the Government has launched a consultation on several proposals aimed at addressing these areas of concern.

The consultation
The consultation identifies the Government’s primary objectives as ensuring that tipping practices are transparent to consumers and workers, that all discretionary payments are voluntary to the consumer and that they are received in full by workers (where appropriate). Through the consultation, the Government is seeking feedback on the following options to achieve these aims:

Increasing transparency for consumers and workers

  • Update the voluntary Code of Best Practice. This may then include updated guidance on the use of card payments, making statements about tips to consumers, requiring employers to maintain policies for workers and providing annual statements for workers.
  • Create a statutory code of practice. This would not create legal obligations but it would instead require the Code to be taken into account in any court or employment tribunal proceedings when determining liability or sanctions in relation to related legal duties.

Making clear that payments are voluntary

  • Require any suggestion of a discretionary payment to emphasise that it is voluntary. For example, by referring to suggested percentage based tips at the bottom of the bill and after the final price or if a final price on the bill includes the tip, the bill to also include the pre-tip price.
  • Prevent businesses suggesting any specific level of tip on bills.
  • Increase transparency regarding cover charges to ensure that the consumer engages the service knowing the extra cost is mandatory. The suggestion is that this could be achieved by requiring cover charges to be identified at the outset and to be itemised separately from discretionary service payments.

Ensuring workers receive a fair share from payments

  • Prevent any employer deduction from discretionary payments (except tax deductions).
  • Limit employer deductions to strictly the actual costs incurred by the employer in handling the payments (for example via card payments).
  • Ban or restrict the levying of table sales charges (where the employer charges a worker a fee based on a proportion of their sales during a shift, with tips in theory covering this cost).
  • Incentivise and increase the prevalence of well managed tronc systems (where tips are pooled and the employer is not involved in deciding how this is shared out between staff). This could be achieved through updated tronc guidance or putting tronc requirements on a statutory footing.

The consultation is open to responses from both individuals and organisation and includes 23 specific questions to be answered. The window for submitting a response closes on 27 June 2016.

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