Restaurant chains could face a hike in costs of up to 10 per cent, now that the Government has ruled tips and service charges no longer count toward staff wages.
Restaurant chains can currently pay their staff as little as £2 per hour, using tips as a means to raise the amount to minimum wage, but by the time the new rules on the minimum wage are introduced, employers will have to give each employee at least £5.73 per hour, with tips added on top.
In a report, consultancy firm PricewaterhouseCoopers (PwC) revealed that the effect of increasing the outgoings spent on staff wages, usually about 35 per cent of a restaurant’s costs, will raise overall costs for each chain by up to 10 per cent.
David Trunkfield, Director at PwC, said: “This in itself may mean the whole ruling is seen as a red herring and could lead to no visible change at all, instead of being used to make up wages, tips could now be used to make up restaurant profits. However this may invite a consumer backlash.”
Alternatively, chains could keep a larger proportion of staff tips as administration fees, a tactic that some companies currently employ, in order to avoid raising menu prices.
Andrew Garbutt, director at PwC, said: “Due to the consumer squeeze, chains are unlikely to be able to pass this cost on in increased prices. This is another thorn in the side of the hospitality industry, which is already facing a considerable headwind from the squeeze on consumer incomes.”
The British Hospitality Association last month declared the proposal as not being “thoroughly thought through”, stating that not only will businesses be worse off, but staff could in fact receive a lower weekly wage as a result of tax and NI deductions, which they may not have been eligible for previously.
“If the government wants to make these changes, they should be considered over a longer period than is being proposed so that adjustments can be made to wages and selling prices,” said Bob Cotton, Chief Executive of the BHA. “At present, they have a potentially highly unfavourable impact on pay for staff. The only person to gain will be the tax man.”
Tip victory for waiting staff