Finding clarity on the future of tipping

EP brought together senior players from across the hospitality industry for a fascinating discussion around the future of tipping – an initiative driven by WMT Chartered Accountants. The session included presentations, survey results and stimulating debate.

Held in the beautiful rooms of Conrad London St. James, guests included hoteliers, restauranteurs, caterers, entrepreneurs and more. At the heart of the discussion was insight into firstly, what the sector believes is the current tipping situation and secondly, the customers view of what, where and how their service charges and gratuities are distributed. This is a summary of the breakfast session and is just the start of an important campaign.

#FutureOfTipping

The overall findings from this session and two surveys with conducted with operators and customers:

  • High level of customer scepticism about what happens to non-cash tips and service charge payments
  • A preference for both waiting and kitchen staff sharing tips (but no consensus)
  • Most operators deduct service charge and many customers feel this is, or could be, acceptable
  • Interest on both sides in an accreditation scheme for businesses that follow good practice principles when it comes to distributing gratuities

Peter Davies, Client Service Partner and Managing Director of WMT Troncmaster Services began the morning with a passionate presentation and set the scene for the discussion. He began by outlining how the PM announced an intention to legislate tips during the October 2018 statement. However, there is confusion because the wording used, “100% of tips should go to workers” can be interpreted differently. The Minister for Small Business has now said, “There will be no legislation in this parliamentary session.”

Peter explained how this high profile subject is often picked up on by unions, media and political parties and is unfortunately dominated by confusion and negative stories. He asked, “Is the industry losing the battle for public opinion?”

He went on to say that most businesses have a positive message to tell but there needs to be clarification on what good practice is. This would result in customer confidence and reduce the risk that future legislation will be damaging.

During the morning EP and WMT presented the results of surveys conducted over late December 2018 and early January 2019. Over 200 senior players in hospitality took part in the first and the main findings were:

  • Cash is still the most common form of payment for gratuities
  • Whilst there is debate over who should receive a share of the gratuities, nearly 60% believe credit card charges should be deducted before they are shared
  • There is a desire for an accreditation scheme that reognises operators who follow good practice principles when distributing tips and service charges to staff

View the full findings here.

Over 300 customers took part in a separate survey and the core findings were:

  • Almost 80% would welcome an accreditation scheme for restaurants who follow good practice principles for distributing gratuities to staff
  • Customers want to understand how tips and service charges are distributed to staff
  • There is a need for greater clarity on how restaurants treat the tips and service charges they collect

View the full findings here.

The session opened discussion and debate in the room and questions and comments varied. There was a strong focus towards making sure customers understand where their tips goes and who to.

Who should control?

Who controls tips and service charges was also debated, as was what these both mean and where they should go. It was felt that in some organisations best practices were not being followed and this was bringing up concerns over loopholes and tax avoidances.

WMT have produced their own ‘good practice principles’ document which lays out guidelines that reflect the Government’s intentions published in 2016. Peter explained that it includes ways businesses should manage their tipping processes so that they are fair and transparent, and that any service charge should be discretionary and clearly advertised.

How tronc systems operate and how they should be managed was also discussed. The general rule of thumb is that businesses should generally not get involved in cash tipping. Peter also added that the administration costs of collecting, administering, processing and distributing tips and service charges should not typically exceed 5% of the tips and service charges collected.

How businesses deal with gratuities and whether they should be allowed to use this towards staff meals, uniforms and benefits was discussed. An example was given of a business which kept £3 per staff member to contribute towards their meals. This naturally led to the question of what will happen if society does eventually go completely cashless.

The main feedback from the session was that the topic is far more complicated then previously thought and there is a need to work together and reach consensus on how tipping should work going forward. The industry must be prepared should change come. 

Comments Following The Session

“I definitely agree that it’s not something that can be fixed in 2 hours. I believe it needs a group of people that are not afraid to question the status quo. The world is changing and so should the way we view service charge. It still amazes me how many people in high positions within hospitality do not seem to know the difference between tips, service charge and tronc and how to make it clear and accessible.”

Another guests commented:

“It is critical that any legislation doesn’t do anything other than prescribe transparency and a sensible limit on any deductions from tips and service charges to cover administration.  What would be a disaster is to outlaw service charges as it would have two consequences – either a reduction in income for staff as the level of cash tipping is lower than the amount raised from discretionary service charges, or a massive increase in the salary overhead to compensate staff for the reduction in take home pay as VAT/PAYE/pension/levy costs will all get added to any salary increases that are required. We certainly cannot see take home pay drop at a time when there is increasing pressure to attract and retain staff because of Brexit related issues.”

A guest of the session said:

“The industry as well as the customer is looking for more clarity on the subject. I do agree… that the subject could do with further digging into. I believe the industry itself would be key in providing the clarity to the customer, however without set guidelines to follow it may be difficult to get this aligned throughout the hospitality sector. I would be in favour of an accreditation system as discussed during our session.”

This is the start of an important campaign for the hospitality industry and EP together with WMT will be holding another session soon to explore the best next steps. From these survey results and session there is clearly a desire to ensure the sector has an accreditation scheme which makes a positive difference. For clarity, employees and customers.

If you would like to be involved please click ‘Register Interest’ below.