British Hospitality Association | Service Charge |New Law

Restaurants and hotels should be legally required to tell customers how service charges and tips are distributed among staff, say the British Hospitality Association (BHA) in a new initiative proposed to Business Secretary Sajid Javid.

The BHA, which represents 40,000 hospitality establishments in the UK, wants the Government to introduce legislation to make businesses reveal exactly what happens to the ‘extras’ customers pay at the end of a meal. Ufi Ibrahim, Chief Executive of the BHA, said: “For us it’s all about transparency. Although restaurants are legally entitled to deduct administration costs from service charges, for example, we think it’s important the customers understand exactly how much is deducted and why. “Customers should be able to reward good service and know where their money ends up and how much of it goes to the staff.” Many restaurants and hotels have signed up to the British Hospitality Association’s voluntary code of transparency on tips and service charges. But now the BHA wants to make it a legal requirement, hoping to end confusion among customers about who is entitled to service charges. Since 2009 it has been illegal for restaurant owners to use tips and service charges to bring wages up to the national minimum wage.

Service charge usually goes into a ‘Tronc’, which is then distributed among

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waiters, front of house and the kitchen team, allocated according to arrangements agreed by the staff. The letter to the Secretary of State for Business said: “…we propose that the following disclosures be made compulsory: Restaurants should disclose to customers how they deal with discretionary service charge and non-cash tips, at least by a written notice available for inspection at each restaurant and on the restaurant’s website, if there is one. "The disclosure should cover:

Whether an amount is deducted for handling costs (and how much);
How the remainder is shared between the restaurant and the employees;
The broad process for distribution, for example, that they are shared between the employees in the restaurant through a system controlled by a representative of the employees.”

Following concerns raised in the media, the government launched an inquiry into the issue. The Department for Business, Innovation and Skills has called for evidence into how cash and non-cash tips, gratuities, cover and service charges are collected and how much employers deduct from their employees. The inquiry does not only cover the hospitality sector but goes much wider, extending to other industries where tipping is prevalent, such as hairdressing and casinos. The deadline for responses is 10 November.

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