I still vividly remember the discomfort when, as a waiter, customers would inquire whether their tip was going to me and the rest of the staff. I would force a cheerful smile and respond, “most of it.”
For nearly a decade, I was employed by a restaurant group that withheld a significant percentage of tips left by customers using card payments. We’re not talking about two or three percent for credit card fees—this was a substantial amount. At one point, the unnamed company reportedly took up to a 15% cut from staff tips.
It wasn’t until I transitioned from working in restaurants to writing about them that I fully recognized the resentment and distrust I harbored in the industry due to that situation. And I’m likely not alone in this sentiment. Data from a report commissioned by hospitality tech specialist Three Rocks in June indicated that two thirds (63%) of businesses deducted a portion of employees’ tips. Among those, 29% claimed to use tips to cover processing fees, while over a quarter (28%) took a profitable share of the tips. This reflects poorly on an industry that often complains about the difficulty of attracting and retaining staff.
Working in restaurants is inherently challenging—fast-paced, demanding, with long hours and often low wages. Adding a monthly 15% deduction from tips can make workers feel significantly undervalued.
This leads us to the Employment (Allocation of Tips) Act, which finally came into effect this week. After nearly three years in Parliament, the Act prohibits businesses from withholding service charges from employees, ensuring that staff receive all the tips they earn. Government estimates suggest that this change will return £200 million annually to staff who would otherwise have had tips deducted.
For me, the Tips Bill is a landmark advancement for restaurant workers and the industry overall. It clarifies the management of tips and service charges, promoting greater transparency and trust not just between employers and staff but also with the customers they serve. I am not the only one who believes this: a recent survey by RSM UK found that 80% of 2,000 consumers think staff should receive 100% of tips and service charges.
However, the Act does raise some concerns. There has been much discussion about how some restaurants might be forced to raise prices due to increased minimum wage costs and ongoing food inflation. Those businesses that have relied on service charges to help pay their staff or offset wages will feel the impact.
Additionally, some have attempted to sidestep the new legislation. London-based dim sum chain Ping Pong faced backlash earlier this year when it replaced its service charge with a discretionary 15% ‘brand charge’ to fund wage increases for its restaurant teams. The company claimed that abandoning a tronc-based service charge meant its teams would still benefit from wages comparable to what they would have received with service charge distribution.
Ping Pong has since retracted its brand charge and now adds a discretionary service charge of 5% to bills, all of which is distributed to staff through their chosen system. They assert that “All of our staff are paid above the national living wage before considering any tips or service charges you choose to provide.”
This serves as a crucial lesson: rather than trying to exploit the system, operators would be better off embracing the new legislation. It corrects one of the restaurant sector’s significant injustices and deserves recognition for that.
