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31 July 2008

Modernising tips: Government starting to take action

Following my blog post on tips in April and my note on the government better regulation site logged at the same time, I am pleased to report that at least part of this is now being taken seriously by the government as reported in today's news. We now need to get complete transparency for charging in restaurants now and abolish the nefarious practice of the mandatory service charge, which only serves to distort prices for customers. No other industry distorts their prices this way, and it has to stop in restaurants. The government response (below) to my idea is non committal and does not help consumers.

There are no regulations covering the practice of mandatory service charges or tips; it is a matter for the individual establishment to decide if they make non-optional charges, at what level the charges are set, and if they include different rules in certain circumstances ie parties over a certain number. Of course, consumers can exercise choice by refusing to dine in the establishment where they consider the charges to be unduly prohibitive. However, where obligatory charges are enforced, they must be set out clearly for the consumer whenever there is an invitation to purchase, ie on a menu card. The Consumer Protection from Unfair Trading Regulations (CPRs) 2008, which came into force on 26 May, require traders not to omit material information which the average consumer needs, according to the context, to make an informed choice but is not prescriptive as to how this information must be given (eg in writing). A case could be made that the average consumer is likely to want to know what mandatory charges are included

The Prices Practices Guide which recommends to traders a set of good practices in giving the consumer information about prices in various situations, and takes account of the provisions of the CPRs, advises that where customers are required to pay a non-optional extra charge, such as a service charge, then it should be incorporated within the fully inclusive price wherever possible, also the non-optional charge should be displayed clearly on any price list or priced menu whether displayed inside or outside the establishment. Where, however, an optional sum is suggested for service, it should not automatically be included in the total bill presented to the customer.

Where a service charge or a tip is paid via a bill, it is a matter for the employer to negotiate with the employee how they are shared out. There is no law which sets this out. However, monies paid to a restaurant (eg by credit card) belong to the restaurant in the first instance, and tax is due on tips however they are paid to the waiter. National Insurance Contributions will be due if the tips are paid to workers by the employer.


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