Tipping - the unpalatable truth

What happens to the money you leave as tips and service charges in restaurants? Is it a bonus for the staff? Does the management skim off the lion's share? Or do the waiters and waitresses take home the minimum wage, no matter how generous you are? In a special investigation, Simon Usborne reveals how you can make a difference

(David Sandison)

It's been a lovely evening. The waiter smiled and took care of your every need, without fussing over you too much or topping up your glass every two minutes. He didn't scowl when it became all too clear that the third member of your party was going to be rather more than just five minutes late. Without being told, he remembered that you said you'd prefer green beans to asparagus, and adjusted the order to suit. And he gave you plenty of time to digest your pudding and talk, rather than looming over the table offering coffee and liqueurs.

So, when the chip-and-pin machine arrives, you're feeling generous. You add an extra £5 tip on top of the 12.5 per cent "discretionary" service charge that's already been factored in.

You might expect both the service charge and your additional tip to wind up in your waiter's pocket at the end of the night. After all, fair's fair, right?

But can you be sure that's what will happen? And what would you think if you discovered that a hefty chunk of your tip is in fact winging its way into the business account of the company that owns the restaurant? Or that, even with your generous tip, your waiter is still only taking home little more than the minimum wage?

Increasingly, some of Britain's biggest restaurant chains are using loopholes in the byzantine system of laws and guidelines that govern the hospitality industry to concoct tipping and service-charge policies that most of us would consider simply unfair, if not scandalous.

Usually, it's the low-paid workers – the waiters – who are losing out. Diners are routinely kept in the dark about restaurants' policies, which are rarely the same from one establishment to the next – and waiters who break ranks to explain the rules to the tables they serve can face suspension, or even dismissal.

Now, a growing band of disgruntled waiters, confused customers and enraged union representatives is calling on the Government to close the loopholes and halt the growing problem of unfairness in tipping.

Today, The Independent joins forces with Unite, the union that represents workers in the hospitality industry, to get a better deal for waiters and customers. Dave Turnbull, Unite's regional industrial organiser, believes the majority of restaurant owners operate policies that are fundamentally unfair. "Our biggest concern is that there are so many opportunities for employers to pull a fast one on waiters and customers and yet still argue, rightly, that what they are doing is legal," he said. "It's got to stop."

On a corner site in Covent Garden sits one of London's most popular tourist destinations – Tuttons Brasserie, an attractive restaurant and bar with a red awning and tables laid out on the piazza. Waiting staff can be seen pounding in and out of the large French doors, each serving several tables, juggling trays of drinks and plates of food.

The staff work hard – this spot of prime real estate is a magnet for hungry shoppers and weary tourists – but what the hundreds of customers who come through the doors each day almost certainly don't realise is that, according to Unite, the waiters here earn a basic wage of zero. Yes, that's right – nothing.

Instead, Tuttons' owner, CG Restaurants, whose parent company, Liberty International PLC, last year made pre-tax profits of £129m, pays Tuttons waiters using only the "optional" 15 per cent service charge added to bills. "It's an abomination," says Turnbull of Unite, which has seen a contract showing the £0 basic wage. "How can you have a minimum wage and then say you can allow customers' tips to contribute towards that? It negates the value of the minimum wage, and the value of the tip."

CG Restaurants, which owns a second branch of Tuttons at the Bluewater shopping centre in Kent, declined to speak to The Independent about its tipping policy but issued a statement, saying: "Tuttons values its customers and staff in equal measure... our staff currently enjoy pay that exceeds National Minimum Wage by more than 30 per cent... we are confident that our employees are satisfied with their terms and conditions."

The Tuttons case may be extreme, but dozens of high-profile chains and restaurant groups, including Café Rouge, Strada, Carluccio's, Caffé Uno and Chez Gérard, pay a basic salary below the minimum wage (which is set at £5.52 per hour for workers aged 22 years and older), and use service charges and credit-card tips to make up the take-home pay to meet or exceed the minimum wage.

A loophole in the minimum wage legislation means that this is perfectly legal, while a flick through HM Revenue & Customs' document E24 makes it clear why the practice has become so widespread. It reads: "If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT." That means that, as long as your bill states that such charges are "discretionary" or "optional", the restaurant doesn't have to pay VAT on the money. All legal and above board, but it hardly seems right that money which the customers think they are leaving for good service is instead paying waiters' basic wages.

Other restaurants do pay the minimum wage or more, but take a hefty cut of service charges and tips left by credit card. The law gives little or no protection against this. If a service charge or tip is left by credit card, that money is legally the property of the restaurant, to do with as it sees fit. Cash tips are different. Unless a system, run by employees, is in place to pool and redistribute cash tips, the money left on tables is legally the property of the waiter.

Some restaurants take an "administration fee" out of the service charge. Martin Couchman, deputy chief executive of the British Hospitality Association, which represents restaurants, says there are "legitimate" costs involved in distributing service charges and credit-card tips to staff. "There'll be commission to pay to the credit-card company, costing in for credit-card fraud and money for the time-spend allocating the money," he says.

Restaurants slice off anything from 8 per cent upwards. But Georgetown Colonial Malaysian Restaurants, which has branches in Kenilworth, Nottingham, London, Leeds and Stratford-upon-Avon, takes 100 per cent of its 10 per cent service charge.

It's a practice Unite has called "immoral". But Kumar Muthalagappan, the founder and owner of Pearl Hotels and Restaurants Group, which owns Georgetown, is defiant. "Our waiters get a salary depending on how good or bad they are," he says. "Service charges are for service, but it doesn't mean it has to go to the waiter – it could go to the company's profit and loss accounts and the waiter is paid out of it in wages. If they think it is unfair they can work for companies that offer a fairer deal."

Asked if Georgetown's policy is misleading to customers, Muthalagappan added: "I think it's very clear for the customer. It's nothing to do with the customer how the company's profits are distributed – it's got nothing to do with anyone what happens to the service charge. The customer who doesn't like the scenario can go elsewhere."

Profit margins are so tight for restaurants that, when waiting staff try to tip the balance in their favour, some employers take a dim view.

A waiter at a leading chain of restaurants in London, which started ratcheting up the share of service charges it took for itself to 90 per cent, was suspended for telling customers where their money was going. He cannot be named because his disciplinary case is continuing. "The majority of customers I told were shocked and didn't pay the service charge," he says. "[The management] said I had tarnished the company's image and they suspended me."

In a similar case, Unite alleges that Nabil Guiguis, a 20-year-old former waiter at Pizza Express, was dismissed for talking to the media about the company practice of deducting an 8 per cent "administration charge" from tips left for waiters on customers' credit cards, a practice Pizza Express insists is legitimate and not designed to boost profits.

The suspended waiter says that unless something is done, it's not only waiters who will lose out. "If there was a system where all restaurants operated the same system, and customers knew where the money went, it would help a lot in keeping the turnover of staff low and retaining good waiters. And in the end the customer will benefit because service will be better."

Eating out is one of life's great pleasures. Does it have to leave a bad taste in the mouth?

The campaign starts here

Today, The Independent sets out three simple guidelines for fair treatment of waiting staff, asking that the Government introduces new legislation to end the widespread unfair tipping practices adopted by many of Britain's restaurants:

1) All restaurants should operate a fair, clear and transparent policy for distributing service charges and gratuities to staff.

2) All restaurants should display their policy on service charges and gratuities clearly on all menus.

3) All waiting staff should be guaranteed a basic salary of at least the minimum wage, excluding gratuities.

All of us have the power to help bring about change – every time we eat out we get the opportunity to make a difference. Under current legislation, it is difficult to be entirely sure what will happen to any money you leave as a tip. To try to find out, first ask your waiter or waitress. Bear in mind, however, that many staff are told not to give out information on what happens to tips, or at least not to explain the policy in full. Unite, the union that represents workers in the hospitality industry, suggests that many staff face disciplinary proceedings if they reveal such details. If you are not satisfied by what you hear, ask to speak to a manager. If you are unhappy with a restaurant's policy, have the service charge removed from your bill and give cash directly to the people you wish to receive it. Inform the manager of what you have done.

We want to know how these issues affect you. Whether you own a nationwide chain of restaurants, manage a cafe or wait tables, tell us about your experiences, and how policies could be changed for the better. Visit www.independent.co.uk/tipping and have your say.

If you work for a restaurant that has an unfair tipping policy, you are not powerless. Every time someone asks about your restaurant's tipping policy, inform your manager – let them know this is an issue the public actually does care about.

Keep us informed – you can have your say on our website without publicly disclosing your identity.

We want your opinions on how tipping should work. Should service charges simply be scrapped, and staff paid higher basic wages? Are you happy to leave 10 per cent or 12.5 per cent – or more? Should "discretionary" charges be added automatically to bills? Is it socially acceptable to ask for a service charge to be removed from your bill? Should tips go straight to the waiter or waitress who served you, or should other restaurant staff – including the chefs – be given a cut? Visit www.independent.co.uk/tipping to have your say.