Service Charges and Tipping in Restaurants
I was eating at a fairly average restaurant with friends, and when we were splitting the bill, with the waiter hanging around, we realised there was a service charge. Someone asked “are we okay with the service charge?”, and, after some hesitation I answered, “I’m happy to not pay the service charge”. There was a long pause. Eventually, another friend quietly said to the waiter, “can we just remove the charge please?”. Awkward!
Wait—why is that awkward?
I think it’s strange that we can clearly see the price of the food we are ordering on the menu at a restaurant, and yet when it comes time to pay, sometimes the numbers just don’t add up. In addition, we may even opt to pay more than the price that we are being charged!
This is a fairly unique phenomenon that generally doesn’t occur in other places that we spend our money.
For starters (pun intended), the law around service charges and tips is clear—they are not the same thing! Let’s look at the facts and my own perspective.
Service Charges
Some restaurants add a 10–15% service charge on to the line price of menu items for the final bill.
Sometimes the restaurant may only apply the service charge for larger groups, because, for example, of the belief in the difficulty in serving larger groups, or that they stay for longer, or that timing the cooking of the food for it all arrive together is more difficult, or that they will proportionally tip less.
It is a compulsory service charge if and only if it was stated on the menu, or you were informed verbally before you ordered. Even in this case, however, you have the right to refuse to pay the service charge if the service falls below a reasonable standard.
Otherwise, it is a voluntary service charge. This may be more clearly stated if words like “optional” or “discretionary” are used. A voluntary service charge is entirely at your discretion, even if your bill comes with it pre-applied.
The restaurant can choose to keep the service charge for itself, or divide it amongst staff in whichever manner they wish, including deducting an administration charge.
In order to find out what they do with the service charge, you can speak to your waiter, bearing in mind that they may be under enough pressure to collect the service charge that they may lie to you (even if they do not receive a penny of it themselves).
In addition, for voluntary service charges, the restaurant does not have to pay VAT on the amount. However, they may charge you for VAT on the whole amount, earning themselves a little extra.
The recipient(s) of the service charge pay income and national insurance tax, handled by the employer through PAYE.
Therefore, if your intention is to give money to the waiter, then you should pay a tip directly as cash (see tipping below). If your intention is to pay a tip to all the staff of the restaurant, then the service charge may be your only option, but it may not do what you want.
My Perspective
With the most charitable perspective, voluntary service charges are added to make it easier to reward good service.
With the most uncharitable perspective, voluntary and compulsory service charges are added simply to make the restaurant seem cheaper. This is deliberately misleading and I would consider it to be outright lying.
I think it’s strange that service charges are added on to the bill at the end, when the very nature of their business includes service.
Considering how fundamental service is to a restaurant, I believe it should just be included in the menu price. After all, they do not tack on electricity, or rent charges on to your bill. Imagine if Tesco did not include VAT in their prices, or added a “service charge” when it came time to pay.
What should I do about a service charge?
I believe the approach is clear:
- For voluntary service charges, ask for it to not be added to the bill, and, if you wish, tip in cash instead.
- Alternatively, for voluntary service charges, ask if they are passed on to staff, or kept by the restaurant. In the latter case, certainly ask for it to be removed, and, if you wish, tip in cash instead. “Do you get all of the service charge, or is any part kept by the restaurant?”
- For compulsory service charges, if the service was particularly poor, ask for it to be removed, and be aware of how to deal with the situation if they refuse.
- Keep the menu. It’s always useful to refer back to the small print, or to take a look at the desserts :)
Tipping
By law, all workers must be paid at least the national minimum wage, and any tips that are given must strictly be in addition to this wage.
This is very much unlike the USA, where the minimum wage for workers receiving tips is just $2.13 in direct wages if that amount plus the tips received meets the federal minimum wage. This is worth mentioning even when we are talking about the UK due to the influence of American media.
When adding a gratuity to a card payment, as of early-2019, the restaurant may keep a significant portion of it, or redistribute it to staff other than your waiter. However, they cannot touch any tips given in cash to the waiter.
Tips given in cash may be kept by the waiter, or if there is a scheme in place, may be pooled into a tronc (a shared group pot) which will be re-distributed by the troncmaster, someone independent of the employer, to staff members at a later date. They must operate a PAYE scheme themselves in order to pay the appropriate tax.
Tax must be paid on tips:
- If a tip is paid in cash directly, then income tax must be paid by the waiter themselves. (Even tronc schemes are NIC exempt.)
- If the employer collects the tip, e.g., through a card payment, then the employer pays income and national insurance tax via PAYE on the amount passed on to the staff.
Waiters must pay the appropriate tax on cash tips. HMRC will estimate the tips based on information from the employer or employee, and adjust their tax code. I was unable to determine the rate of tax evasion, it may very well be low despite my preconceptions.
Therefore, if you wish to maximise the cash in the pocket of your waiter or the restaurant staff, and don’t mind possible tax evasion, then tip directly with cash.
My Perspective
Is it normal to tip in the UK? Many people, naturally including those working in the restaurant/service industry, will argue that it is perfectly normal, and, indeed, expected. I really don’t think it is, except, perhaps, within certain circles. Sometimes tipping is associated with etiquette which is particularly bizarre to me.
I firmly believe that tipping is morally-indefensible, deeply unfair and harmful, and that it should not be done for any reason.
It allows employers to underpay their workers
“Welcome to my restaurant; now please pay my employees yourself.”
If you are always tipping, then you are just topping up the salary of restaurant workers. If you feel this is morally justified because they earn a low wage, then you are complicit in supporting and perpetuating a system that underpays workers.
“It’s not a living wage without tips. You can blame this on the restaurant’s pay structure if you like, but is that a reason not to tip the waiter?”
It’s not a reason to tip either because the cost of paying the staff is the restaurant’s business, not the customers’.
If you believe their salaries are morally unjustifiable, and you actually know what the salaries at that restaurant are, then you can refuse to patron the restaurant. Alternatively, you could put time and effort in the structural problem in society itself through campaigning to change the law or establishing unions.
Tips are not required for good service
The argument that the restaurant will have better customer service is not a universal self-evident truth. A good counter-example is Japan, where tipping is seen as an insult, but customer service is, apparently, amazing.
The normal causes of strong work performance should equally apply to customer-facing roles, namely self-intrinsic motivation (and a fair salary). Every other workplace is capable of maintaining good performance without tips.
Further, any tip that is a percentage strongly relates to the price of the food, and weakly to the quality of the service. Why should carrying lobster from the kitchen mean a better service was provided than carrying pasta? Yet, the former would result in a higher tip.
A strong culture of tipping is harmful to waiters
As seen in the USA, the adoption of a more extreme culture of tipping is harmful to waiters.
Tipping can be problematic because it seems to create classes, that of the customers, and that of the service workers, who have to satisfy the customers and sort of “beg” for the tips through any means.
Workers can be forced to tolerate unacceptable behaviour to earn their income.
Tipping is deeply unfair to other equally deserving low-wage workers
There are many other situations where you are served by someone and it is not normal to tip.
When you pay at your supermarket, do you add on a 10% to your bill for the cashier? No, they’re paid by the supermarket after all.
When you ask an employee at a shop to check something in the back for you, e.g. shoes in a particular size, do you give them a tip? Do you tip them if they gave you good advice?
When you arrived at your destination on a bus or a taxi, do you leave a little extra for the driver?
Do you tip your child’s teacher? Your barber/beauty salon worker? Your car washer? Mechanic? Postman? Dry-cleaner?
Do you tip the bloody surgeon who saved your life?
No, you give them a heartfelt thank you, or a simple gift that shows your appreciation.
These are all jobs directly providing you with a service.
If you feel they earn less than they need to live: do you tip teaching assistants, or other lower-than-they-deserve salary jobs? If you don’t, are you not being super selective and hypocritical?
Is a waiter’s job particularly hard compared to everyone else’s? I don’t think so.
Are you tipping your waiter or the whole restaurant staff?
Both approaches are unfair in each their own way, and I’ve seen people stood firmly on either side.
As discussed earlier, who receives the tip varies and you may have limited control over the matter.
Some people see it as unfair that the skill and behind-the-scenes work put in my the chef and other restaurant staff is not also additionally rewarded.
While others see pooling tips as going against the incentive structure, where the waiter provides you with a strong service.
Others yet still see it as unfair that the hard work of the kitchen staff may go unrewarded if the waiter was responsible for poor service (and vice versa).
The rich impose it on the rest of us
When top earners spend more money, those who earn less feel pressured to keep up. The idea being that you must be visibly as impressive as wealthier people.
Tipping may even be discriminatory against the relative poor, if you truly believe that customer service is in proportion to the size of the tip. This can encourage discrimination in service against customers believed to be poor tippers.
In addition, people have have internalised tipping as a social norm, causing disobedience to illicit social disapproval, embarrassment and feelings of guilt or unfairness.
Tipping is a threat to democracy. These are strong words, but tipping disproportionately allows rich people to influence and control others. This form of control increases inequality.
What should I do about a tip?
Don’t.
Conclusions
Tips are a scam and harmful to society.
Places with compulsory service charges can be avoided, and voluntary service charges can be refused by smiling and saying, “can you take off the service charge please?”. Tips can simply be not given.
This opens the way for workers to be paid a fair wage from their employers, and allows them to provide a good service out of the pride of simply doing their job.