What’s happening with Tips, Service and Cover Charges? Part 2 - Some explanatory background information

Posted on behalf of Howard Field

There are no common practices in the UK hospitality industry for the handling of tips and service charges. From time to time the subject is brought into view principally via the media, and usually because of issues of dubious practice or union activity. 

In 2009, the then BIS (Department for Innovation and Skills) published - in connection with National Minimum Wage - A Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges. This guide incorporated consultations with BHA, BAHA (now HOSPA), BDO and employee and consumer representatives.  

The principles contained in the guide revolved around accessible transparency for customers and employees about the policies for these charges. Beyond this, it remained a matter for businesses to determine how to establish their policies and apply the available options.  

In September 2015, the BIS issued a Tips, Gratuities, Cover and Service Charges Call for Evidence (BIS-15-508) that was focused on ‘concerns raised about the treatment of such payments in the hospitality sector, particularly in relation to the percentage of each payment that goes directly to the employer’. 

This process did not engage the range of parties consulted for the Best Practice guide. BIS stated the Government role as:

  • In light of the evidence collected through this call for evidence, the Government will consider whether action is required. We will consider whether there is action the Government should take to ensure employers do not withhold from tips anything other than credit card administration and payroll costs. We will also consider action to improve transparency.
  • Views are sought on options to increase transparency of tipping practices, as well as what further action Government could take and the feasibility of these options. 

The survey questions were somewhat confusing and did not address all of the relevant issues. It was timed to close in November 2015, and it is understood that there was a very low response numbering around 200 that did not fully represent the views of all the affected parties. 

In May 2016, the BIS issued a Government Consultation on Tipping, Gratuities, Cover and Service Charges (BIS-16-172). The consultation had a deadline for responses of 27 June 2016.  The result of this was said would be ‘The Government will publish a summary of consultation responses and the next steps to be taken.’  There has since been no information as to the number and content of such responses.  

The BIS Minister at the time, Sajid Javid, stated in his foreword to the consultations:

  • ‘This consultation will be particularly relevant for workers, individuals, the general public as consumers, businesses, employers, consumer representatives, labour providers, worker associations, trade associations and employment advisors who are affected by, or involved with, discretionary payments for service and cover charges. All consultation responses will be considered in the context of wider employment and consumer legislation and interests.’It mentioned that there are ‘around 150,000 businesses with 2 million workers’ in the industry sectors potentially affected - and that there were ‘nearly 200 respondents’ to the earlier survey. Various options for the Government were set out to strengthen best practices, including the placing of what was a voluntary code on a statutory basis. In the meantime, the department has become the BEIS (Business, Energy and Industrial Strategy) with a new Minister. It is not known where the subject sits in the priorities for this department. During 2017, through the media, examples have been made public of hospitality businesses that had breached wage rules, for example by using service charge revenue towards the payment of minimum rates. Union action has focused on the levels of deductions made to cover costs such as payroll administration and credit card charges.