Service Charges, Gratuities and Cover Charges (Hospitality, Leisure and Service Sectors) (Statutory Code)

Andrew Percy Excerpts

Tuesday 9th September 2014 Commons Chamber

[Andrew Percy (Brigg and Goole) (Con)]

I beg to move,

That leave be given to bring in a Bill to establish a code relating to service charges, gratuities and cover charges in the hospitality, leisure and service sectors; and for connected purposes.

The current position relating to tips, gratuities, service charges and cover charges is not clear or transparent for consumers, and is also unfair to employees, who often do not receive all the money that customers try to give them following their service. The Bill results from a number of examples that I have encountered in my constituency, where people working in the service sector have raised concerns about whether or not their employers are passing on tips and service charges, but also from what has been said in some of the national media, and, of course, from my own conversations in restaurants and hotels with those who work in them.

Consumers often do not know whether charges on a bill are mandatory or discretionary. They often have no idea of how much, if anything, the employee will actually receive. There is no requirement in law for service charges or tips to be distributed to employees, and there is far too much confusion over the whole matter. Customers often feel that there is more of a chance that the employee will receive the tip if it is made in cash rather than with a credit card, but that varies from business to business. That, too, proves that there is a lack of transparency in the matter.

Following pressure from the hon. Member for Linlithgow and East Falkirk (Michael Connarty)—who, sadly, is not here today; I assume that he is in Scotland trying to save our beloved Union—the last Government did implement changes by introducing a voluntary best-practice code in 2009, and also outlawing the previous arrangement whereby tips could be used to top up the minimum wage, which, of course, was different in this particular sector.

The new code of best practice acknowledged four key principles, and asked businesses to agree to them when they signed up to it. Those principles were that businesses should display, prior to point of purchase, their policy relating to mandatory and discretionary service charges and tips; that businesses should have a process to deal with requests for information on how service charges, tips, gratuities and cover charges were dealt with and shared out; that businesses should ensure that workers were able to explain the policy, and were confident about doing so; and that workers should be fully informed about how service charges, tips, gratuities and so forth were distributed, and how deductions were made.

The code was supposed to promote transparency, which is beneficial not only to employees but to employers and consumers. A research poll by Gallup found that engaged employees generate 43% more revenue and are 87% less likely to leave the business than disengaged employees. The code was supposed to be reviewed after a year. It has not been. There is strong evidence of widespread abuse of the code and of many companies choosing to ignore it.

The Bill aims to do three things. First, it aims to set out clear measures on the distribution of tips and service charges, which are important in constituencies such as mine where the tourist trade is important. That is also true in the constituencies of my hon. Friends the Members for Cleethorpes (Martin Vickers) and for Aberconwy (Guto Bebb), who are here today, where there are many hospitality workers on the minimum wage. The Bill would secure a proper process for the distribution of tips. I propose a model similar to the tronc model that exists for national insurance liabilities. Employees themselves will determine how tips and service charges are distributed in the business: if kitchen and bar staff are to get a share, that will be decided by the employees. That is not happening at the moment. Where troncs do exist, the policy is often determined by one person appointed by the management or business owner. We want a proper process in law that will allow employees to decide how tips will be distributed.

Similarly, many businesses argue that there is an administration fee involved in collecting tips, particularly via credit cards. The Bill aims to set a maximum at which that percentage could be charged. Personally, I believe that there should be no percentage taken by the employer, but there is a view among some that they incur a cost in collection. Therefore, I would seek consultation on that matter. However, the Bill would provide a power to set the maximum percentage that can be taken by the employer.

There are plenty of good examples out there—Pizza Hut, TGI Friday’s, Harvester, All Bar One and Toby Carvery distribute 100% of tips to employees. Other national chains have not done that, including PizzaExpress, which sacked a waiter who revealed that it took an 8% admin fee, and Bella Italia, which took 10%. There are examples of businesses taking even more. In the more extreme cases, businesses are collecting tips but not distributing them to workers at all.

The final element of the Bill would require the business to display its policy on tips and service charges so that the consumer is aware of exactly where the tip or service charge they pay will go and how it will be distributed. My local radio station, BBC Radio Humberside—I will give them a shout-out, thereby guaranteeing I will get on air again—did a vox pop on the issue this morning with the, I am sure you will agree Mr Speaker, sound people of Brigg. When asked their view on the issue, 100% agreed that tips should be distributed to the people they expected them to be distributed to—the workers in a business.

Conservatives are often challenged on whether proposing new regulation is something we should be doing. It is not an un-Conservative principle to pass legislation that protects the consumer and employees and benefits employers. Under the Bill, a consumer who pays a tip or service charge will know where it is going, which is a key principle. When asked, most consumers have no idea how tips are distributed. The Bill will protect employees, many of whom are on the minimum wage. They can work at one restaurant one week and receive 100% of the tips and then go to another and receive none of the tips because there is no requirement for them to be distributed. For many people, particularly in constituencies such as mine, where wages are generally low and there are minimum wage jobs, the measure will provide a way to top up their incomes. It is not right for employers to be able to cream off a percentage of that.

The Bill will be good for employers in a number of ways. Someone asked me the other day whether employers rely on that percentage to help their business. I am sorry, but employers’ profit margins should be built into the cost of the product, service or food that people are buying. A business should not exist because it is able to cream off service charges or tips. If there is a cost in that regard, there is an argument to be made in a consultation on the maximum amount that businesses should take.

The Bill will also benefit employers in a different way because it will hopefully result in staff being more engaged. The Institute of Customer Service provided me with some interesting statistics from its research on the issue. It found, as I said earlier, that engaged employees deliver 43% more revenue, 87% are less likely to leave and 67% would advocate for their company. When employees considered themselves to be disengaged from their employer, only 3% said that they would advocate for them. The Bill will therefore be good for businesses, consumers and protect employees’ rights.

I have been able to secure cross-party support for the Bill. I am pleased to see the hon. Member for Scunthorpe (Nic Dakin) in the Chamber, a near neighbour who supports the Bill. I hope that the House will give me leave to bring in the Bill.

Question put and agreed to.

Ordered,

That Andrew Percy, Henry Smith, Diana Johnson, Andrew Stephenson, Nic Dakin, Mr Graham Stuart, Martin Vickers and Guto Bebb present the Bill.

Andrew Percy accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 17 October and to be printed (Bill 89).