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One can hardly enter a UK bar, café and restaurant these days without a “suggested” tip or service charge of up to 15 per cent appearing on the bill. It feels mean for customers to refuse but we are often confused, even resentful: what is this for, and who gets the money?
The Gaucho steakhouse chain made its answer clear this month to staff, if not to diners. A newly-recruited head waiter will keep just 17 per cent of service charges from tables that they serve. The other 83 per cent will be shared among the chefs, receptionists and others at the restaurant where they work.
These sums were set by Peter Davies, an accountant who acts as Gaucho’s “troncmaster” allocating payments (after the old term “tronc” for a tip pool). He decided that the share for new waiters should be cut sharply from the chain’s previous approach. “The troncmaster strongly believes that service charges are paid by customers in respect of their whole experience,” he wrote.
This policy may come as a surprise to Gaucho’s diners and it has upset Unite, the union that represents some of the staff. “Most punters would not think it is fair that so much of the tip does not go to the waiter,” Bryan Simpson, Unite’s hospitality organiser, told me of the new service arrangement. Gaucho insists that its employee costs will remain the same and “the business itself does not benefit in any way”.
But the Gaucho case is part of a larger trend. The proliferation of service charges in restaurants and bars has been accompanied by redistribution away from front-of-house staff to chefs, assistants, and other staff whom the customer rarely sees. Tips are becoming part of hospitality wages, not a personal reward for good service.
The increase in UK service charges has been called “US-style tipping” but it operates differently. US diners expect to tip their waiters directly and the federal minimum wage is set lower for employees who receive tips. Britain is creating a system in which hospitality companies embed service charges across their staff compensation.
This is partly an unintended outcome of the Tipping Act, which mandated that workers have to receive all of the service fees that are charged by their employers, after complaints that some were being diverted for other uses. The law came into force a year ago and has led to many companies appointing “troncmaster” firms to organise the schemes. Davies heads WMT Troncmaster, one of the largest.
At the same time, the government imposed a rise in employer national insurance contributions from April. Together with increases in national minimum wages, this has pushed up hospitality employment costs sharply. Gaucho’s parent group Rare Restaurants made an £11.5mn loss last year and others are closing branches and shedding jobs under the financial strain.
The changes have combined to create an incentive for hospitality companies to offset labour costs with service charges. They need to pay all staff at least the legal minimum wage but it suits them if the wages of workers who are hardest to recruit and retain will be topped up with tips. This often means raising the share for in-demand roles such as kitchen chefs.
They can also reduce their taxes in this way. Neither employers nor their staff are liable to pay national insurance on service charges that are collected and distributed in an approved fashion. Companies are not allowed to control the arrangements directly: they must appoint an independent figure to oversee them. Hence, the growth industry of troncmasters.
Hospitality companies have raised service charges and funnelled more money into troncs, while disclaiming responsibility for how they work. But they are not powerless: they can pick troncmasters who are likely to distribute the money broadly, and offer them advice. The law even permits employees at “non-public places of work” to gain, although Gaucho says its scheme will not include head office staff.
Unite is now seeking changes to the law so that troncmasters are elected by staff, and to curtail how widely tips can be shared. But companies are not solely responsible for what has happened. By increasing the cost of employing everyone from waiters to chefs, the government added to the pressure to use charges to fill the gap.
So do not be confused when handed a bill with a 15 per cent service charge at a restaurant, or asked to add a gratuity when buying coffee on a card in a café. These are not tips in the old sense and only a small share may end up with the person serving. They are the new cost of employment.
