UK – The UK government has introduced a new law, taking effect from October 1, that prohibits restaurants, hotels, cafes, and pubs from withholding tips or service charges left by customers, whether made in cash or by other payment methods.
The new law comes into effect eight years after its initial proposal.
According to the government, the new law is meant to enhance the income of 2 million waiting staff and other hospitality employees.
The law was enacted following various exposes in media outlets showing restaurants, cafes, pubs, and hotels deducting money intended for waiting and kitchen staff from customers’ card payments.
However, many restaurants are already struggling with higher minimum wage and ravaging food inflation, which has dampened profit margins.
Although UK Hospitality, the trade body for hospitality in the UK acknowledges players have gradually prepared for the proposed change, moving towards a code of best practice endorsed by unions, the law is set to limit their revenue sources.
Hotels, restaurants, and pubs are responding to the changes by finding other ways of recouping the costs related to the new legislation. A fifth of all restaurant businesses in the UK keep a share of service charges to help cover their costs.
Saxon Moseley, Head of Hospitality at RSM said, “Those that have been using the service charge to pay staff or to partly offset their wage bill are still going to have to pay their staff, but now won’t be able to draw on this cash fund.”
“And in that scenario, margins will be hit, in some cases fairly drastically.”
UK Hospitality reveals some players have responded to the legislation by increasing the service charge by almost 15%. This increase in service charges is expected to be translated to customers.
Other players are considering increasing menu prices, reducing portion sizes, or finding other ways of cutting costs.
The trade body also revealed many restaurants, hotels, cafes, and pubs are finding it hard to agree on the terms of a ‘fair’ share of tips following the legislation.
Hospitality staff have already expressed concern over the implementation of the new legislation, criticizing players for misinterpreting the new fair tips legislation to fit their business needs as opposed to the needs of hospitality workers.
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