Hospitality Sector: Tipping

Laura Pidcock Excerpts

Wednesday 7th March 2018 Westminster Hall

[Laura Pidcock (North West Durham) (Lab)]

I declare an interest as a member of Unite the union.

The practices at Bristol-based Aqua Italia, which have been so methodically exposed by my hon. Friend the Member for Bristol North West (Darren Jones)—I thank him very much for raising this important issue with the Government—and, of course, the Bristol Post are, sadly, part of a much bigger picture of exploitation in our low-pay economy. My hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) outlined so eloquently the multitude of issues in the hospitality sector.

When I was a waitress and then when I worked in a pub, it was quite a regular practice for tips to be used to balance the till if it was under what it should have been at the end of the night. The worker would feel like a culprit because their tips were being used; they would feel that they were somehow being accused of defrauding their employer out of that money. But with thousands of transactions, there will be mistakes, and of course it was clearly very unfair to ask the workers to provide the money out of their hard-earned tips.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

My hon. Friend shares a very typical anecdote about something that many low-paid workers will experience; I speak as one whose first job was as a waiter in a well known Glasgow pizzeria. The typical practice was to be paid a pound under the minimum wage and then to have a tip allocated as a wage per hour to bring the person up to the minimum wage, so patrons of the restaurant were unknowingly contributing to subsidising the basic wage of the staff. I would often tell them that by giving us a tip, they were simply subsidising the employer to pay the wages. This practice is absolutely disgraceful, and that is why the work of people such as Better Than Zero is critical to addressing the massive inequalities that we see in employment.

[Laura Pidcock]

That is absolutely right. My hon. Friend gives a terrible but, I am sure, quite common example of what is happening in the hospitality sector. I implore everyone in that sector—and in all sectors, of course—to join a trade union, because only through a trade union can they have greater workplace rights. Also, consumers will become more aware and ask questions about what is happening to the tips when they are in an establishment.

What happened at Aqua Italia has been very well set out. Most striking was the case of the woman who had to go to a cashpoint at the end of her shift. How draconian is that? What century are we in when somebody has to pay just to be at work? Of course, the mantra of this Government is that for people to get themselves out of poverty, they must be in work. That is clearly a story to the contrary.

It is astonishing that this practice is legal, and it is more commonplace than people imagine. Although it remains within the law to treat people in such an extraordinarily exploitative way, it certainly cannot be said to be moral. The problem in the hospitality sector was and is the chronic lack of regulation, which has meant that exploitation—especially of young people, who perhaps are unaware of their rights and of the benefits of being in a trade union—has been allowed to flourish. That shows that we cannot rely simply on self-regulation in that sector.

Trade unions have taken a special interest in the sharp practices used in the hospitality sector since at least 2008. In May 2015, after it emerged that restaurants such as Pizza Express, Bill’s and Strada were taking tips and service charge payments intended for staff, Unite the union launched a summer campaign against these practices. For example, Pizza Express claimed an 8% so-called “admin fee” from any tips paid on a card. That is a huge problem, which has been repeated. There was public outcry as the endemic nature of the problem was displayed and publicised via social media. The huge public reaction forced the Government to act. They launched this call for evidence into tipping practices, followed by this consultation. However, as has been repeated consistently: nearly two years on from the consultation, what action has been taken?

In June, Unite campaigners handed a 6,500-signature petition to the Business Secretary, urging him to release the Government report into tips, but it still has not been published. The petition called on the Business Secretary to give staff 100% of their tips with complete control over how they are shared, to ban the bogus tronc schemes and make the code of best practice mandatory. For every single day that goes by, more abuses come to light. The so-called “pay to work” schemes are part of this broader set of practices, which cynically exploit restaurant workers and customers, who are none the wiser.

[Catherine West]

Whereas previously a waiting job was done for a few months or in the summer while someone was a student, these days, with the flat economy we are seeing, people are working in the waiting sector for several years as a full-time role. Does my hon. Friend agree that we now have to get to grips with the situation, get some energy into this and really address the poor practices?

[Laura Pidcock]

My hon. Friend is absolutely right. For many people this is not a stop-gap, but a career—they will work for many years in a restaurant, bar or pub.

Workers are charged fees, denied service charge payments, robbed of customers’ tips and denied tips by these bogus tronc schemes. A properly run tronc scheme— a pooling system, used by employers to distribute non-cash tips for employees—should be genuinely independent, free from employer interference and involve staff, but many are not. Too many say that they get absolutely no say in how the non-cash tips and service charges are shared out, or who gets a share. We have to remind ourselves all the time that it is not the business of the employer to say what happens to those tips. Those tips are hard-earned by the service of that member of staff.

Unite has also uncovered something very important. A number of these bogus tronc schemes, organised through troncmaster consultants—quite a dramatic name—have been used by companies to minimise the basic income of workers in order to avoid liabilities on national insurance and pensions. One case of this was an advert for a sous chef with a salary of £28,000. Once taken on, the employee found out that their contract stated a salary of £16,000, with the remaining £12,000 being paid from service charges. If anybody thinks that these practices are tailing off, I should say that two weeks ago we heard about the scandal at TGI Fridays, the American chain, following the proposal to redistribute card tips from waiters to kitchen staff, in lieu of an increase in wages.

Bogus tronc schemes are among a handful of ways in which tips are taken from the pockets of waiting staff and redistributed upwards and outwards into the pockets of companies, both big and small. Trade unions are rightly pointing out that these schemes verge on remuneration avoidance, illicitly reducing companies’ tax liabilities, and therefore should be subject to an investigation by HMRC.

Until staff are given 100% ownership rights over their hard-earned tips, with complete control over how they are shared out, bad employers will continue to take the tips of staff—that has been proved conclusively throughout our history—and young people will continue to live with that insecurity of low pay and not have the regularity of their tips. As the unions have been urging the Government for a decade now, it is time that the Government showed some leadership and dealt with these appalling, exploitative practices that exploit both the customer and the employee. Let us be honest: tips are often a lifeline for staff, but they often become a subsidy for low pay. People are dependent on these tips to live, not just for luxuries.

I am becoming somewhat tired of the Government’s inaction, already mentioned by hon. Members, in response to the low-pay economy. We do not need another review, consultation or any further consideration, but we do need a legislative imperative on employers to stop this theft from their staff. Actually, a whole new suite of workers’ rights is needed, placing collective bargaining, as has rightly been said, at the heart and centre of that agenda. The Taylor review and the Government response to it did not go far enough at all. In fact, the Government’s response to some of these complex issues in the modern labour market was extremely weak. I look forward to the Minister announcing that he will indeed take decisive action on this issue.

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[Andrew Griffiths]

I am glad that the hon. Lady and I have found common ground on that point.

The Government are committed to creating an economy that works for everyone. That is why I was extremely concerned to learn from the hon. Member for Bristol North West about the working conditions experienced by some low-paid workers in the hospitality industry. I recall the period of scrutiny that the sector faced in the summer of 2015. Several of our largest restaurants were discovered to be abusing tips earned by their staff. I will clarify for the hon. Gentleman that I recognise the point he makes about the cost of transactions. He will also recognise that income tax is due on payments where the employer acts as the troncmaster—a fabulous word, which I had never heard before I started to prepare for this debate. There is a responsibility on the employer to deduct PAYE, and we must take into consideration the fact that that will result in some payroll costs. Where the employer facilitates the amounts, national insurance contributions are also due. Clearly, it is important that any employer acting as a troncmaster fulfils their legal obligations in relation to the payment of both income tax and national insurance contributions.

The cases raised today are of exactly the same type as the 2015 cases, which are the reason why we had the consultation. I thank the hon. Member for Ellesmere Port and Neston (Justin Madders) for his contribution, in which he raised important issues including the cancelling of shifts. That is a real problem. People turn up to do an evening’s work only to find that if the restaurant or pub is quiet, they are sent home without any further pay by their employer. They expected to do a four or five hour shift, but they may get paid for only one. I am delighted to tell the hon. Gentleman that, in response to the Matthew Taylor report, we are looking at exactly that: the asymmetry between the flexibility required of workers, particularly those on zero-hours contracts, and the employers that can send employees home at will.

[Laura Pidcock]

Was that a sneaky preview of policy that will be coming from the Government? Are they going to ban zero-hours contracts?

[Andrew Griffiths]

I point out to the hon. Lady that for many people who are employed on them, zero-hours contracts are exactly what they want. I recognise that is not the case for everybody, but all the consultations show that for many people zero-hours contracts provide the flexibility that they are looking for. That is not to say there may not be an argument for some sort of enhancement or bonus for those workers’ flexibility. That is why, following Matthew Taylor’s report, we asked the Low Pay Commission to look at whether those on zero-hours contracts who have to offer such flexibility should receive an enhancement on their wages as a repayment for it.

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[Andrew Griffiths]

I absolutely agree. That old phrase, “Physician, heal thyself” applies here. We should set the same standards ourselves. I would point out, Sir Roger, that I do not employ an unpaid intern.

The Government are clear that all workers should be paid fairly and at least the relevant national minimum wage. For those aged 25 and over, that is £7.50 per hour. I am pleased to say that the Government will increase that rate above inflation to £7.83 next month, which I am sure all hon. Members will welcome. In all, increases to the minimum wages will benefit more than 2 million workers. That is a well-earned pay rise for them from this Government. I thank all the businesses that have stepped up to the plate and are working hard to pay the national minimum wage. The Government respond robustly to employers that fail to pay their workers correctly. We have doubled our investment in enforcement, as I stated.

A worker aged 25 and above must be paid that £7.50 by their employer. All income earned through tips must be over and above that sum. Let me reassure the hon. Member for Glasgow North East (Mr Sweeney) that any income earned through tips must be over and above the national minimum wage. If any employee is not getting that, their employer is breaking the law. They should report it, and HMRC will take action to ensure that is enforced.

The hon. Member for Bristol North West raised restaurants charging a 3% table levy to their workers. That is a proportion of whatever sales are earned on the table that worker has served. It should not be seen as a route through the national minimum wage, because it is not.

It is my top priority to ensure that the lowest paid workers are fairly rewarded for their work and contribution to the economy. It simply is not right for employers to keep huge proportions of the tips earned by workers. Accordingly, in the past two years the Government have run a call for evidence, as we have heard, and a public consultation to examine this in greater depth. The exercise established a very clear principle that I think the House will agree with: a majority of stakeholders agree that tips belong to the worker. I would like to make it clear that this Government will act should there be clear, ongoing evidence. This debate has added to that ongoing evidence. The principle is that no employee should be abused in this way.

[Laura Pidcock]

I do not want to disrupt the Minister’s progress, but the trade unions have been saying this for a long, long time. It should not take a Westminster Hall debate to legitimise the argument or add to evidence. They have all the evidence the Government need.

[Andrew Griffiths]

As the hon. Lady will know, at the end of last year Unite the union, of which she has said she is a member, worked alongside the Association of Licensed Multiple Retailers to produce a new code of practice. That was a joint collaboration, and I pay tribute to both the industry and Unite the union for working in such a proactive way to develop a voluntary code of conduct. I also recognise that a voluntary code of conduct works only if everybody sticks to it. As we have heard, there are still companies that are not sticking to it.

The agreement between the unions and the ALMR about the principles that underpin good tipping practices is clear, and it provides great guidelines for how to distribute tips fairly among all workers, not just those at the front of house. We must remember that those working in the kitchen or cleaning tables are just as much a part of the service experience as those waiting on tables and interacting directly with diners, so I understand the need for the tronc system where tips are spread more widely among staff in some circumstances.

Since 2015, we have seen another change, which is that employers are noticing. Poor employers who misuse tips now face tough scrutiny—not only in Westminster, but under the harsh media spotlight. I am encouraged that newspapers raise the issue on a regular basis and highlight the points made by the hon. Member for Bristol North West.

Hon. Members asked when the Government would formally respond to the consultation on tipping. I have listened to the calls for further action from the Government; many would like to see an outright ban on employers making deductions from tips or levying table charges. It is an extremely serious issue, and the Government reserve the right to take action or to legislate if necessary. The evidence that we have heard clearly indicates that the Government need to look at it very closely and to take action if necessary.

Let me be clear: we are not ruling out legislating to solve the problem. Workers should be treated fairly, and I am clear that it is unfair for employers to pocket a huge proportion of the tips earned by staff. Furthermore, employers who play fair are disadvantaged compared with unscrupulous employers. It is a competitive market. We have heard the figures for how much unscrupulous restauranteurs and people in the industry can make as a result of that kind of scheme, which provides them with an unfair advantage in the marketplace among their competitors who are doing the right thing. I am very mindful of that, so we will remedy the situation if the industry does not act on the abuses that are sometimes reported.

Naturally, all options for Government action carry costs and benefits. It is important to get it right so any action is targeted and benefits the workers, while burdens on legitimate, well-meaning businesses are minimised. Employers should not be out of pocket, and I entirely accept that they may need to retain a small proportion of tips to cover the administrative cost of processing them, as I said earlier.

There are many examples of good employers who act entirely fairly about their staff’s tips and who recognise that treating workers fairly is part of running a productive and happy workplace. Ultimately, it is up to employers to make a compelling offer if they want to attract and retain the best staff.

I thank the hon. Member for Bristol North West for securing the debate and for the collaborative way in which he has raised these issues. I look forward to working with him on them in the weeks to come. It is right to call out abuses of tipping and the exploitation of workers in the hospitality sector, and more widely.

It is the responsibility of all employers to pay their staff fairly, and at least to pay them the national minimum wage. Hon. Members should be clear that if that is not happening, the Government will act if necessary. Our policy is that employers should not make unfair and unreasonable deductions from tips. We reserve the right to introduce further sanctions against employers who fail to comply with that basic principle of fairness.