CIPD: Restaurants under fire for deducting admin fees from staff tips @cipdlondon @cmi_managers #HR #Law

CIPDCIPD (But law gives little protection to waiting staff. Recent press coverage has shone a spotlight on several well-known restaurant chains charging staff “administrative” fees for handling tips paid by customers. Business secretary Sajid Javid has weighed into the ensuing row, announcing an investigation into alleged abuse of tipping.

A government consultation on the issue will close on 10 November 2015. But some restaurant chains have already changed their policies on tipping, with Pizza Express, for example, recently announcing that it is dropping the 8 per cent admin fee levied on staff tips paid by credit card.

Minimum wage
The law currently offers little protection to waiting staff whose tips are subjected to deductions by their employer. Waiting staff, along with all other employees in the UK, are, of course, entitled to the National Minimum Wage (NMW), currently £6.50 for those over the age of 21. But since the National Minimum Wage Act 1998 was amended in 2009, tips, gratuities and service charges cannot be taken into account when deciding if a waiter has received the NMW.

As long as restaurants pay the NMW, therefore, there is no legal requirement for them to allocate a particular proportion of the service charge or tip income to employees. However, a restaurant that requires waiting staff to pay back a percentage of the table sales they generate on each shift, apolicy reportedly used by one chain, may leave itself open to a claim under the NMW Act in the unlikely event that a waiter’s earnings fall below the minimum wage.

Unlawful deductions
Service charges and tips may count as “wages” for the purposes of legislation covering the unlawful deduction of wages. Indeed, section 27(1)(a) of the Employment Rights Act 1996 defines wages as “fees … referable to [the worker’s] employment, whether paid under his contract or otherwise”. In the case of Soudiere v The Capital Hotel (Knightsbridge) Ltd [1998] UKEAT 915_98_0111 (1 November 1998) the Employment Appeal Tribunal (EAT) took the term “otherwise” to refer to tips, since they are not paid by the employer but by customers.

While a waiter could, in theory, claim for unlawful deduction from wages, following the decisions in Soudiere and the earlier EAT case of Saavedra v Aceground Ltd (t/a Terrazza-Est) [1994] UKEAT 639_93_3011 (30 November 1994) it is unlikely that such a claim could be based on a restaurant deducting a handling fee from non-cash tips and service charges. In the Saavedra case the employer withheld tips paid to staff through a central “tronc” system in order to cover a fall in the turnover of the business. The EAT held this to be an unlawful deduction from wages. Claims for unlawful deduction from wages are likely to succeed only in similar situations.

Voluntary code
Given that waiting staff are offered little or no protection in law, they are forced to rely on a voluntary code of practice overseen by the British Hospitality Association. While this code suggests that cash tips should be retained entirely by waiting staff, it acknowledges that there is no legal requirement on a restaurant to allocate a particular proportion of the service charge or tip income to employees. In fact, the code goes on to accept the likelihood of restaurants deducting administrative charges, stating that “… a deduction for costs incurred in handling these sums would cover credit card and banking charges, payroll processing costs, and the average costs of credit card fraud. The level of costs deducted will vary, depending on the nature of the business”.

The Government’s Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges, first published in 2009, also anticipates such charges. One of three examples the code gives states: “For every £1 received in card tips, the staff keep 70p, 10p covers business costs and administration and 20p goes to the business [this includes deductions for breakages, till shortages and walk-outs.] All cash tips go to staff.”

Restaurants are coming under intense press and union scrutiny for policies that are both lawful and have been standard practice in their industry for some time. Time will tell if other restaurants take the same line as Pizza Express when deciding whether the damage to their reputation caused by charging an admin fee on tips paid by card outweighs the financial costs of refiguring how they manage tips.

Tom Solesbury and Shivali Chaudhry are solicitors in the employment team at Hamlins LLP

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