In April, the dim sum restaurant chain Ping Pong announced the trial of a new policy: it banned its customers from paying service charges to its workforce (if paid by card), replacing them instead with a discretionary 15% 'brand' charge, said to be necessary to fund franchise fees and other brand-related expenditures. The new brand charge has replaced the 12.5% service charge. At the same time, the company raised staff wages by 19%, which it claims matches the earnings that workers would have received with service charges distribution. Ping Pong's parent company said it would be reviewing all constructive feedback on the trial before making a final decision this month.
Controversy
The decision to introduce this policy was brought on by the Employment (Allocation of Tips) Act 2023, the new tipping legislation that makes it unlawful for hospitality businesses to hold back tips, gratuities and service charges from staff, requiring that staff receive 100% of the tips paid by customers, and which is due to come into force in October 2024.
The move sparked controversy in the sector: on the one hand the pay increase grants stability of wages throughout the year (thus reducing the impact of seasonality), will translate into higher pension payments down the line and may facilitate access to financial products (such as loans or mortgages) for staff. On the other hand, it may mean higher taxes for employees (national insurance contributions are payable on salary but not on tips/service charges distributed through an appropriate tronc system) and the wage rise could be lower than the actual tips that employees might have otherwise earned.
The Unite union accused Ping Pong of circumventing the new fair tips legislation and creating confusion among diners, who may be under the impression that the 'brand' fee they are encouraged to pay goes to the restaurant teams when in fact it is directed elsewhere in the business. Minister Kevin Hollinrake also expressed concern about Ping Pong's new brand charge.
We are now waiting for Ping Pong's decision this month as to whether it will make the brand charge mandatory, introduce price rises or a combination of the two.
Challenges
With the introduction of the new tipping legislation and relevant statutory Code of Practice the Government sought to introduce fairness and transparency in the distribution of tips and to put an estimated £200 million more into workers' pockets. In this context, the restaurant chain's policy appears inconsistent with the spirit of the new legislation.
However, many hospitality businesses, who were just recovering from the pandemic when they were hit by increased energy and food costs and high inflation, may try to be creative ahead of the changes in tipping law coming into force, as a way to recover some of the charges in question.
Ping Pong's early creative initiative may be one of more to come from other hospitality businesses although it remains to be seen whether its brand charge will be adopted permanently and whether it will be an acceptable alternative to a fair and transparent tipping system for workers in line with the new law.
Guidance
The Government published the updated Code of Practice on Fair and Transparent Distribution of Tips on 22 April 2024. It supports measures in the Employment (Allocation of Tips) Act 2023, setting out the principles of fairness and transparency and reflecting (as far as reasonably possible) the multitude of ways in which employers collect tips received by workers. Judges will have a duty to take the Code of Practice into account in determining disputes relating to tipping practices in relevant cases. However, failure to fully follow the Code of Practice will not in itself mean that an employer has acted unfairly. Hospitality businesses are recommended to familiarise themselves with the Code of Practice and the new law in good time ahead of these coming into effect on 1 October 2024.
On 22 April 2024 the Government also published its response to the consultation on the draft Code of Practice. In it the Government committed to provide further guidance to assist businesses to implement the new rules. The more detailed non-statutory guidance on the implementation of the new law is awaited.
It will be interesting to see whether the non-statutory guidance will feature any case studies similar to Ping Pong's policy and an indication as to whether such policies will hold water against the new legislation.
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