Following a call for evidence in August 2015 on the prevailing practices of those operating in the hospitality sector regarding tipping, the government has embarked on a period of consultation to identify areas for possible future regulation.

The government’s consultation on tipping, gratuities, cover and service charges is to address a number of concerns that expressed by participants in the call for evidence earlier this year. Contributors highlighted significant concerns regarding the treatment and transparency of discretionary payments for service in the hospitality and allied sectors. In order to address these concerns, the government is proposing a range of options with a view to achieving three broad objectives:

1. Ensuring discretionary payments are seen as ‘discretionary’
The call for evidence highlighted a degree of confusion among consumers on the discretionary nature of discretionary service payments, and concerns were expressed as to whether or not this was being effectively communicated to consumers. The options currently being consulted upon include: (i) allowing businesses to suggest a discretionary payment for the service of their choosing, but on the condition that it is made clear to consumers that any such payment will be purely voluntary; and (ii) preventing businesses from suggesting any discretionary payment for service on a customer’s bill, thereby giving the consumer complete discretion on whether or not to make an additional payment.

The government does not propose to change the current treatment of cover charges: these are charges that consumers are required to pay in addition to payment for the core service (such as an entrance fee to a bar or club). However, the government is interested to know if there is any appetite to make it clearer to consumers that such charges are a mandatory component for making use of a service.

2. Ensuring workers receive a fair share of discretionary payments
A significant number of contributors to the government’s call for evidence were consumers, many of whom confirmed their wish would be for any discretionary payment for service they made to be given directly to the relevant worker, or at least that workers shared in a separate arrangement to distribute tips which was beyond employer control (sometimes known as a ‘tronc’). It was also communicated through responses that there are various reasons why employers may wish to deduct certain sums from discretionary payments beyond the usual tax deductions e.g. training activities, recruitment etc.

The government is inviting views on a range of options, including barring employers from becoming involved in handling discretionary payments for service – other than to make the relevant tax deductions – through to placing tronc requirements on a statutory footing to provide an effective check on employer involvement.

3. Increase transparency for consumers and workers
The government has noted that, in light of the responses to its call for evidence, the voluntary Code of Practice on Service Charges, Tips, Gratuities and Cover Charges appears not to have been properly understood: contributors to the call for evidence indicated there was a low uptake by employers to follow the code and consumers appeared to lack an understanding of how discretionary payments were treated.

The government is inviting views on either updating the code of practice to achieve the wider policy objectives that the consultation hopes to achieve, or placing the code on a statutory footing. While the government does not intend for any statutory code to create legal obligations that could be directly enforceable in legal proceedings, it has been suggested that it could be relied upon by courts and/ or tribunals in determining any alleged liability for breach of consumer or employment laws.  

The issue of the treatment of gratuities and service charges has been a troublesome one for employers, employees and consumers operating in and around the hospitality and leisure sector. The government’s engagement with stakeholders through the consultation period is intended to provide an informed view on the effectiveness of the various options being proposed. The consultation period will end on 27 June 2016.

If you are interested in participating in the consultation, please let your usual Shepherd and Wedderburn contact know.

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