More on this tipping stuff

Las Iguanas, a chain serving Latin American food at 41 branches in the UK, and the Caribbean chain Turtle Bay, which has 19 restaurants, operate a policy that requires staff to pay back to their employer 3% of the table sales they generate on each shift. That figure rises to 5.5% in Las Iguanas’s London restaurants.

If a waiter sells £1,000 of food and drinks in an evening, they have to pay £30 back to the restaurant in cash at the end of the night. At Las Iguanas’s London restaurants, the payback would total £55. The money is meant to be paid by waiters from their pot of tips but, because it bears no relation to how much a waiter actually takes in tips, it can wipe out his or her entire income from gratuities in a busy night.

This looks like a codification of an American practice and the problem is with the codification, not the practice. It also, from my understanding of what used to be the law at least, looks to me to be illegal.

The American idea is that the waiter hands over 10-15% of their tips to the bartender(s) and in some places something similar to the busboys (if the restaurant uses them) or the kitchen possible. So, 20-30% of tips go off to the other staff who are not directly tipped by the customers.

This works largely on the honour system and the enforcement is of course that tables get bussed more slowly, drinks prepared more sloppily, to those who don’t tip out. And the crucial point is that it’s not linked to sales, but to tips received. Someone double tips, then all share in the bounty, someone stiffs, then all suffer.

The basic idea is fine: because of course “you didn’t build that” as the waiter, even if you’re the direct point of contact and major determinant of what the tip is going to be.

It’s the codification that’s at fault here: linking it to sales is one problem. The other is the legality of enforcing it. Tips, in English law, belong to the waiters. The moment management starts to insist that they control the distribution of them (rather than just saying “this is what we do around here”) then that’s obviously not the waiters’ property any more. And if they’re collecting this sum and then redistributing it according to management priorities then, well, as I say, I would at least prima facie consider this to be illegal.

And yes, many years ago, I did quit a job over exactly this point.

22 thoughts on “More on this tipping stuff”

  1. When I was waiting tables in Sweden, I was told that the tips would go into a common pot which was redistributed between waiting, bar, and kitchen staff by the union rep.

    I refused to participate (the system was supposedly voluntary, enforced by social pressure) which initially got me in trouble with the other staff. However, I didn’t see waiting tables as carrying food from the counter to the table, I saw it as an opportunity to sell food. I pulled in more tips than the other waiters, and after each shift I personally shared my received tips with the people who helped me.

    After about two weeks, the kitchen and bar always prioritised orders from my tables. And I pulled in more tips as a consequence.

    I see the service charge as an evil. I don’t understand why any restaurant owner would impose it, unless they want the money for themselves. When it is given to the staff, it does not entice the staff to try and understand what they are doing, it only creates a sense of entitlement, which is a disincentive to effort.

    When a choice between a place that levies a service charge versus one that doesn’t is a viable option, I choose the one that doesn’t.

    And I always tip cash.

  2. What an unholy mess. How about this for a system: The punter pays the advertised price for the goods and/or services offered, the businessman remunerates his staff fairly in line with the local market.

    It seems to work in every single industry except restaurants. What is so special about them?

  3. Works fine in restaurants in Hong Kong too. Waiters will chase you down the street (or rather, down the corridor on the 26th storey) to give you back the six cents you overpaid by.

  4. Why do we have to tip waiters ? In France they got rid of tips many years ago by absorbing it into the price. In most other jobs people do their job for the salary alone and it is the job of management to ensure that the waiter is good. If they are not then I do not return. The system is archaic and stressful all around i.e. you decide not to tip because the food or the service was bad then you are gonna have a scene with some waiter which makes a frustrating evening into a disaster.

  5. It’s the interaction with the tax system.

    Incorporated into the price of the meal, then that pays 20% VAT and 25 % (ie, employers and employees) NI and then income tax at 20%. Roughly. £1 on the meal means 35 p to waiter.

    Tips pay only income tax: 20 p. Thus £1 in tip pays 80 p to waiter.

    And that’s pretty much it.

  6. I have experience of tipping in the UK, France and Canada. The Brits I note are not often generous if they tip at all. The French are positively stingy. The Canadians tip well and understand and accept that workers in the hospitality sector rely on tips for their pay. I noted that in fact the pay of hospitality workers were far in excess of those of of their European counterparts and allow them a relatively high standard of living.

    I do not know if the USA works in the same way as Canada but I suspect it does because Canada follows American practices not the other way round. So what you are saying is happen is not perhaps surprising and is quite an equitable thing to do there but not in Europe.

  7. @Frederick,

    Quite.

    The rest of us have to pay income tax, VAT, social security and so on. Having some sectors exempted from that is such a blatant market distortion that this should be something for Ritchie and Tim to hate on together.

  8. Why illegal, Tim? You can have all strange sorts of things written in to employment contracts.

    I’ve had multiple jobs where you are either not allowed to accept gifts (which is what a tip fundamentally is) or have to hand them over to the management. Who may let you buy them back at a market rate or may just auction them without telling you. (It never happened to me – I worked in the wrong area to get anything other than a drink bought for me – but a colleague was given an engraved Rolex by a Saudi student. He was willing to pony up for the watch. The MoD refused to tell him when or where it was going up for sale.)

    It is quite clear from UK law that running a tronc – an independent pooling and distribution of tips – is legal (otherwise there wouldn’t be quite so much HMRC advice about how to run them) and also that the owner can take all the tips and distribute them to their own satisfaction (although that brings it fully within the NI and PAYE system.) Including keeping them for themselves – wholly or a portion to cover costs. Which means that you can be contractually required to hand over tips. So a waiter can keep the tips, I agree, but they can also be sacked for breach of contract. Unfair is not equivalent to illegal.

    BiG – “The rest of us have to pay income tax, VAT, social security and so on”. Yup. Except you don’t have VAT deducted from your pay, do you? And tips are still subject to income tax, just outside PAYE. All that tips are actually excluded from is NI. Because the customer is not legally the employer. Which is why mandatory service charges fall within the NI banner.

  9. Not quite: because the definition of tip is that it does belong exclusively to hte staff. If it doesn’t, it’s not a tip: with those tax implications as you say. Yes, pendantry, but management taking part of the tips without the tax implications would indeed be illegal in my reading.

  10. bloke (not) in spain

    “The French are positively stingy.”
    Aren’t they, but? Whenever I get hustled by the lookiemen – the guys come round trying to flog cheap watches, sunglasses etc – I always reply in French. It’s like magic words for banishing demons.
    TimW’s correct about the tax thing. So why don’t we all do it? Instead of paying a £10K lawyer’s bill, give them seven & tuck a thou in his top pocket as a gratuity. Maybe we could do the same with the guy from HMRC.

  11. I’m with BiG on this. I’ve never felt comfortable giving tips, either charge the rate for the job or not. Most people seem more than happy with some praise being given for a job well done at the end of the evening.
    If we could legally subtract 10% from any substandard service, then that would be a different kettle of fish and councils and the NHS could then feel some heat.

  12. management taking part of the tips without the tax implications would indeed be illegal in my reading.

    Yes, true. But, pendantically, that’s making a couple of flying assumptions. In the Las Iguanas case, they state:

    it allows them to share tips with non-waiting staff through staff development and reward schemes.

    There is nothing in here that suggests that the correct tax treatment for those schemes aren’t being followed. Clearly, the 3% / 5.5% clawback is being managed by the employer therefore, is as much as any of it is ever seen by the employees, tax is due through PAYE and both forms of NI. (Although, and I appreciate it isn’t the case here, if that money was dumped straight in to an employee-run tronc, it would be interesting. Although unfair – as the amount bears no relation to the actual tips received – which is the main moral, rather than legal, issue here. The key there would be whether the employer had a significant say in who got how much money, as far as the tax treatment goes. If a business said, “keep half of actual tips received, half in to the tronc”, I appreciate that might be seen as unfair to the waiting staff. Although you’d have to, I think, put all of tips paid through card in to the tronc, otherwise you, the employer, are technically determining who gets what. Which means PAYE and NI due.)

    Unfair, as I think I have said before, is not illegal.

  13. And in other news, one of the Guardian’s usual idiots completely fails to understand what is going on:

    The ones that do take a portion of tips use a special word for this – “tronc” – and say the money they take is to cover the administration cost of divvying up money for the staff.

    Sighs … (for Suzanne not for the OP or any of the comments.)

    You can accept ‘anon’ (1st comment)’s point that the individual waiting staff are better able and equipped to determine who should benefit. You can accept what appears to be Tim’s point that it should all go to the waiter. You can accept the points various that we should just pay people properly.

    But you can take a portion of tips without running a tronc (this appears to be the Las Iguanas issue – it’s not entirely clear) and you can run a tronc without the employer taking any of the tips.

  14. “…to cover the administration cost of divvying up money for the staff.”

    They’ve just saved themselves some tax and then they want another slice?

    Incidentally, d those blokes who open the limo doors at the Ritz still have to pay the hotel for their jobs and buy their won uniforms?

  15. I do not see any of this as problematic, or requiring any of the state interventionist solutions offered.

    So long as the restaurateur makes full and fair disclosure of his terms, what’s the problem?

    And please, do not say that the poor little waiter needs protection. I worked as a waiter for 6 years and can assure you all that it’s mostly the restaurateur who needs protection from predatory wait and kitchen staff.

  16. “Why illegal, Tim? You can have all strange sorts of things written in to employment contracts.”

    You can’t bypass income tax law by writing something in employment contracts.

    If you could, then of course almost everyone would write such contracts.

  17. Surreptitious Evil

    You can’t bypass income tax law by writing something in employment contracts.

    True but irrelevant. You can’t bypass any criminal law in any contract*. What Tim was complaining about was the employer taking the tips. I quote:

    And if they’re collecting this sum and then redistributing it according to management priorities then, well, as I say, I would at least prima facie consider this to be illegal.

    Now, ignoring the morally abhorrent (but probably not illegal) allegation that this wasn’t about actual tips but a %age of the billed sales, the above is entirely legal. As long as the appropriate tax rules are followed. Regarding which there isn’t any suggestion in the limited source material that they weren’t.

    And if they are seizing it all and dumping it in a trance, that’s also legal and somewhat more tax beneficial.

    There are many occasions where we feel that the law should be different. More moral, more caring, more in accordance with our prejudices and preferences. Great. Campaign for it to be changed.

    Just don’t insist that the law _is_ the way you wish it should be. For that way leads to LHTDdom.

    * I usually run in to this in relation to Part IVA of the Employment Rights Act 1996 which makes a mockery of most standard NDAs.

  18. Surreptitious Evil

    Tronc, not trance. Obviously. Although there may not be much difference in some of these cases.

  19. If everyone just refused to tip, tipping being a disgusting cultural import anyway, then it wouldn’t be a fucking problem, would it?

  20. “Tips, in English law, belong to the waiters”

    Well that’s all very well, but as soon as the waiting staff start to insist on their legal rights, the management are surely going to say, “Fine, it can all go through P.A.Y.E. then” – which isn’t really what they waiters want, is it?

    And Machiavelli, you CAN deduct from the bill for poor quality or service; it’s a civil matter and their only legal recourse then would be “see you in court”. Naturally you’ll need a pretty determined demeanour to ride out subsequent arguments, which in some places will descend to violence…but that is the legal position.

  21. Bloke not in Cymru

    My worst experience of tipping was the U.S. when paying for a round of drinks I asked where the change was and the reply was that she assumed it was a tip. Leaving apart the fact it would have been 20% just for bringing some drinks over to the table I pointed out that I would leave a tip at the end of the evening as it was my choice not hers. If looks could kill I would have been toast, didn’t stay for a second round or order food.

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