PUBS and restaurants are facing a perfect storm, and it could mean you’ll soon be shelling out US-style tips just to keep them afloat.
A double whammy of government policies, designed to help hospitality workers, are actually pushing the industry to the brink, leaving customers to pick up the tab.
Service charges are increasing, even in places where tipping was rare, with some restaurants now asking for up to 20%, plus additional cover charges.
The previous government’s Tips Bill, aimed at making sure staff get all their tips, has had some unexpected drawbacks.
Although it guarantees waiting staff keep 100% of their tips, it has removed a financial safety net for restaurants dealing with rising costs and fewer customers.
Kitty Slydell-Cooper from hospitality group Countertalk said that, before the law, service charges helped support restaurants financially.
Now, that safety net is gone, and many restaurants pay staff the minimum wage, using tips to top up their pay, which spreads the money more thinly.
Adding to the strain, increases in the national minimum wage and the government’s rise in employer national insurance contributions have further intensified the financial pressure on the hospitality sector.
In April, the national living wage rose by 77p an hour to £12.21, while the rate of employer national insurance contributions increased from 13.8% to 15%.
Plus, the threshold at which businesses begin paying this tax was reduced, dropping from £9,100 to £5,000 a year.
As a result, businesses are quietly cutting staff, reducing employees’ hours, removing perks, and even sending workers home without pay when business is slow.
Ryan, who works at an upscale bar in Mayfair, told The Telegraph that his team has been cut down from 13 staff members to just four.
Those who are left are working fewer hours and struggling to make ends meet.
He said: “One of my bartenders got paid £1,600 in January.”
“I just don’t know how some are surviving.”
To cope with rising taxes, hospitality chains are adding extra charges and increasing recommended service fees to help cover the additional costs.
For instance, at the upscale London restaurant The Wolseley, there is a 15% recommended service charge, plus a £2.50 cover charge.
Kitty said: “Expect to see 15% on your bill as standard, and don’t be horrified when the card machine is asking you to add an additional gratuity.
“It will be propping up a totally beleaguered industry, so it’s best to view it as a tax loophole that allows for the restaurants you love to survive.”
Despite these expected increases, in most cases, diners are still not obligated to pay service charges.
However, the majority still do, according to the Hospitality Professionals Association.
What are the rules on tipping?
Since October 1 2024, the Employment (Allocation of Tips) Act 2023 requires employers to pass on 100% of all tips, gratuities, and service charges to their staff.
Businesses must have a written policy outlining how tips are shared fairly and keep detailed records of all tips received and distributed.
If a service charge is discretionary, customers must be made aware that it is voluntary.
Employers are still responsible for national insurance contributions on distributed service charges if they control the distribution, but a tronc system changes this.
A tronc is when tips are managed separately by someone other than the employer.
Employees are then responsible for declaring cash tips received directly for income tax
These rules were introduced to protect hospitality staff’s tips, but diners can still choose to tip if they want to.
Even if your receipt includes an automatic service charge, you are not legally required to pay it.
Service charges and tips - what's the difference?
IT'S easy to get these two mixed up, so here's a quick breakdown:
- Tip: A voluntary payment made by a customer to express satisfaction with the service. The customer decides the amount (or if they want to tip at all).
- Service Charge: An amount added to the bill by the restaurant or business. It may be discretionary (optional) or mandatory (compulsory).
The Tipping Act mandates that all tips and service charges must be distributed to staff.
If a service charge is optional, customers must be clearly informed that they are not obligated to pay it.
It’s always a good idea to review your bill to see if a service charge has already been included before adding an additional tip.