Tuesday, May 03, 2016

Service Charge Debate: A view From the Inside

As a time of year when one of the most important questions in our generation is being considered and debated- remaining or leaving Europe- something rather trivial for all of us is getting some interest in the media:
Shall we force restaurants to include service charge in their pricing?

I have been thinking about this for a while and having ran a restaurant in a country where service is included (France) I am getting quite worried about the impact on employees rather than employers those changes will ultimately have; unless we look in depth about how it might affect peoples lives, things should not be rushed just because a spoilt food pundit is having an existential tantrum. 

At the moment, “his” annoyance of having an extra line on a restaurant bill adding 12.5% service charge is the main problem. One could wonder why this has not been factorized already in the price of the meal but I think a lot more thinking has to be put into this to decide ultimately if this arrangement needs to be changed.

So this what currently happens in a British restaurant: 
An employer usually pays his employees minimum wages per hour and then allows a Tronc master to distribute usually between 90 to 100% of the total discretionary service charge collected via credit card, cheque or cash payments (which is 12.5% of a total restaurant bill ex VAT). 
A tronc scheme is something serious and follows strict guidance from HMRC. 
A tronc master who is usually elected by employees (who have probably left long time ago) decides who earns what (as point or percentage of the amount collected) and distribute the money accordingly. 

Because HMRC accepts that service charge is not a safe income, there is no NI contribution on the amount paid from the Tronc and a fixed % on income regardless of the amount. It is a great benefit for an employee who can receive a share of income tax discounted. But again, for small earners who only collect a tiny portion of service charge, one way or the other does not make much difference. From the employer side, the saving from using this method is quite small.
However, for those who collect a big chunk of the Tronc, this is like earning your salary in Panama.

In fact, there is no maximum as to how much you can pay yourself from the tronc.
Say, if a restaurant collects £20,000 of Tronc money per month and the Tronc master decides to keep half of that for himself; there is nothing stopping him from doing so. Imagine earning more than £120,000 per year (on top of your minimum wage) only taxed at around 20%. Not bad.

There is no arguing that this arrangement is a massive carrot for top people in a restaurant and has helped to retain and motivate many of them and ultimately helped to make this country one of the most hospitable in Europe.

On the other hand, France who abolished “payment รก la piece” many years ago, things are very different there.
Based on 35 hours a week, a minimum wage for a French waiter is equivalent to a British one (just over €9 euros per hours x35 against £7.20 x40); cost of National Insurance plus many other things pushes the price of employment to almost €18 an hour.
This makes an impossible mission for an employer to entice staff by offering them the opportunity to earn more by selling more; to earn more by being kinder to guests; to earn more by being flexible with guests…etc
Some might say that all of this should be standard- but sadly it is not the case.
Go and grab a lunch in a Paris brasserie and you’ll quickly understand that when there are no carrots, service suffers.
Employees are locked in their “service inclus” and quickly come to the conclusion that an ok service will pay them as much as an outstanding service.

The system currently in place here in UK is intelligent and works for both employers and employees. So as long as a Tronc system is not abused by greed - things should stay exactly as they are. 


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