Restaurants, hotels and other hospitality firms have been criticised for withholding tips from workers, and the government is planning to enact legislation in order to ban this practice. Labour Markets Minister Paul Scully claims that the ban would ‘ensure tips will go to those who worked for it’.
Tips, in the UK, are seen as a way of appreciating and rewarding good service within the hospitality industry, yet many hardworking workers cannot keep their hard-earned money. In 2015, restaurants such as Pizza Express, Cote Brasserie and Bill’s were accused of withholding tips, yet denied doing so.
Why Tips are Important to Workers
Due to the nature of hospitality work, many service jobs are paid the minimum wage. Yet often in cities and regions with a higher cost of living, minimum wage may just not be enough. Tips allow hospitality workers to have some flexibility with their income and are rewarded well for good work. From a theoretically economic perspective, tips or ‘gratuity’ seem to solve the principal-agent problem. The problem suggests that the agent e.g. server may not act in the best interests or in line with the objectives of the owner, such as profit maximisation. Tips are said to therefore provide a greater incentive for workers to put in a larger effort and increase efficiency, as they receive payment corresponding to the quality of their service. The new legislation is said to help about ‘two million people working in the hospitality industry’ according to the Department for Business, however, the Living wage Foundation argued that the focus should be on improving wages in lower-paid sectors instead
Why Withholding Takes Place
The main cause of tip withholding in recent years is due to the advancements in retail and hospitality technology, with customers now being able to select tips on tablets when paying by card. Cash tips have since then become scarce, especially with the UK progressing towards a more cashless society. Cash tips are the legal property of workers, yet businesses have autonomy over card payment tips and can choose whether to keep them or pass them on to their workers. A reason businesses may want to keep card payment tips is to make up for the fact that businesses incur bank charges when customer tips by card. Service charges are said to be paving the way for how tips should be distributed, creating a fair percentage system to supplement the server’s wages. However, the issue of a fixed amount is that it doesn’t reward better service and is disincentivising workers, which contradicts the initial aim of gratuity.
The legislation is expected to take effect next year, and if broken employers risk being taken to an employment tribunal. Workers will be given the right to request tipping records from their bosses as well, to ensure a fairer tipping culture in the UK.
Written by Sanjana lyer, Lead Journalist for The Backseat Economist Research compiled by Kristina Njeru