Service charge and tips have been the elephant in the room for a long time, but after years of hand wringing, an increasing number of restaurants are seriously contemplating the ‘service included’ model and moving away from tronc. There are a few reasons why this is happening now. On 24 September the Government unveiled a plan to overhaul tipping practices, and will make it illegal for employers to withhold tips from workers. The plan uses the terms both ‘tips’ and ‘service charge’ so it is understood that ‘tipping’ in this case, includes both. If you are considering moving to a ‘service included’ model within your own business, these are the steps to take.
1 Communicate with staff
If you do not adjust the wages of your staff when you move to a service included model, they will be taking less money home. This is because employee and employer National Insurance is not paid on money paid to staff through a tronc scheme. If a restaurant stops taking added service charge, then the portion of that which was paid to an employee through tronc previously will now have tax added to it – for both employer and employee. That said, the actual salary for a staff member will be higher as a guaranteed £X per time period rather than a basic of £Y + £Z from service charge. This means staff will be in a better position to access mortgages and loans. Should a situation arise where furlough is implemented again, they will receive a percentage of the guaranteed wage, rather than the guaranteed basic wage, which would be lower.
2 Re-calculate your forecasted turnover
First, work out the costs that tronc would previously have covered, including the portion for staff, breakages if you factored them in, staff events, admin and credit card processing costs. Then add the extra National Insurance costs you will be liable for, and add VAT onto all of these. From this number you can work out the percentage you will need to increase prices by to stay at the same level of profitability.
3 Balance your sales mix
Now that you have your new turnover targets you can re-price and rework your menu to give a balanced sales mix. You won't be able to increase all your prices uniformly - because you'd end up with weird prices like £13.76 and also the customer just wouldn't accept certain items being priced past a certain point - so in the kitchen you may have to start looking at different suppliers or ingredients or finding other efficiencies to decrease costs. On the beverage side, where the price of a bottle of wine can be compared across different restaurants, you may have to look at different ways of gaining a competitive advantage. This might mean sourcing innovative or hard to find drinks.
4 Have a company policy for any customers who wish to leave card tips
There are a number of options available to businesses. You can discourage this practice and only accept cash gratuities to go directly to a member of staff; accept the tip and distribute it to staff only via a tronc scheme, incurring the cost for administrating this; or use a third party company such as TiPJAR to receive cashless tips and distribute among your staff.
5 Communicate your decision
You and your staff should be able to clearly communicate to customers and other stakeholders why you have moved to a new model. Engage your communication, marketing and HR people if you have them, or prepare statements yourself, so that both your staff and interested members of the public can understand why you have adopted the service included model.
Hussein Ahmad is client lead at Viewpoint Partners