‘I understand the need for transparency around tips, but this is why restaurants need to add a service charge’

Last month, The Independent ran an article on why more diners are opting out of service charges. Many readers agreed, but as new tipping legislation comes into effect, Harriet Mansell, chef-owner of Lilac in Lyme Regis, explains how the new rules could be the difference between keeping the doors open or shutting down for good

New legislation on tipping comes into effect on 1 October (Getty/iStock)

The cost of running a restaurant has skyrocketed across the board – everything from goods to utilities to staffing. We’re dealing with price hikes while also trying to be diligent employers. It’s not as simple as raising prices because the moment we do that, we risk scaring customers away. People are watching what they spend, and eating out, for many, is a luxury.

A few years ago, we made the decision to raise wages to combat the staffing crisis. At the time, it felt like the only way to attract and retain employees. But the costs have continued to rise – wages, ingredients, utilities – and while we want to maintain those higher salaries, the margins simply don’t allow for it anymore.

Since the pandemic, we’ve also had to deal with VAT back at 20 per cent, which in the current climate is unsustainable. It’s basic mathematics – money in versus money out and we are being pinched from every angle. After the 5 per cent VAT relief during Covid, which was a lifeline, the jump back to 20 per cent, combined with all these rising costs, has left many restaurants with no profit margin – some are cash flowing until they can no longer do so, and the majority of businesses I have spoken to are currently operating at a deficit.

We’re doing everything we can and looking at avenues to sustain the business, including gradually raising prices to avoid shocking diners, contually auditing costs and evolving our offering. We are actually busier than ever, which is fantastic and testament to many of the things I have already mentioned, but that is increasingly offset by the financial situation we are in. But if something doesn’t change, we’ll see more restaurant closures. Some businesses are surviving because they have other revenue streams, but independent restaurants like mine are going to need to be far more creative in how we proceed. We need to pay our staff fairly and meet basic costs, but we can’t charge what we need to cover the overheads. It feels like an impossible position.

Tipping is another layer of complexity. Like many others, at my restaurant, we’ve chosen to add a discretionary 12.5 per cent service charge, and many customers do pay it. But increasingly, we’re seeing people refuse or opting to leave a few pounds in cash instead. We always make it clear when presenting the bill that it’s optional, and if a customer asks for it to be taken off, we don’t make a fuss.

New rules on tipping

Effective 1 October 2024

• The new tipping legislation requires businesses to distribute all qualifying tips fairly and transparently to workers according to a new Code of Practice.
• The legislation applies to employer-receieved or worker-received tips, as well as vouchers, stamps, tokens, casino chips or anything with a monetary value capable of being exchanged for money, goods or services.
• Tips cannot be subject to deductions, including administrative fees, and must be paid by the end of the following month after they were paid by the customer.
• Employers must implement a written tipping policy and retain a record of total tips received and details of their allocation to staff for up to three years.
• All workers, including agency, have the right to request tip records and challenge distributions via employment tribunals within 12 months.

I understand times are tough, but what most diners don’t realise is that the service charge is not directly supplementing wages in the way people often think. Staff already have their wages, and tips are more of a “nice to have” – an added incentive that makes the job more appealing by boosting their overall pay with a few extra pounds per hour, something extraordinarily valuable in this climate.

What I’ve noticed is that bad experiences often get substantially more airtime, which creates a negative culture around tipping as well as a sense of distrust. People are quick to assume the worst, but in reality, the majority of restaurants, like ours, operate fairly and transparently when it comes to distributing tips.

In the past we have taken a small percentage from that service charge to cover the administrative costs of handling this charge, and also for breakages, but with the new tipping policy coming in, we will need to seek another way to offset those costs, which is fine but in a time of being squeezed from every angle, it simply falls into the category of how as a business owner you juggle costs to make it work. We are simply doing our best to offer a fantastic service, really look after our employees and navigate the economy.

That 12.5 per cent service charge might seem like a lot from the customer’s perspective, but in reality, it’s a very small percentage of what restaurants need to cover costs. It certainly couldn’t replace the wages we’re required to pay staff. While tips can make a job more attractive, they’re not a lifeline for wages.

With the new tipping legislation, we’ll need to be more transparent about how tips are distributed, and we’re ready to do that. However, without clear guidelines from the government on how to implement the changes, we won’t be altering our current practices just yet. We already believe we’re handling tips fairly.

There’s a growing sense of distrust – customers don’t trust that businesses are being transparent about tips, staff are questioning where their money is going, and employers like me feel the government isn’t understanding or making any concessions for the predicament that the hospitality industry is in. It’s a vicious cycle. I understand that people want to know where their tips are going, and we’re happy to explain it. But the bigger issue is that we’re being squeezed from all sides – taxes, wages, bills – and we don’t have much room to manoeuvre.

Our team now makes more per hour than ever before, yet we’re barely able to meet payroll some months, even in the busy summer periods.

VAT at 20 per cent is impossible at this time, with national living wage increases, price rises across the board coupled with the household budget being squeezed... something needs to give. I’ve reached out to my MP about the issue, but I haven’t heard back yet. The government doesn’t seem to understand that without some relief, independent restaurants like mine won’t have the capacity to buffer this situation forever. We’re not just talking about a few closures here and there; this will fundamentally change the high street. I’m determined to keep going for as long as possible, and have unwavering determination and passion, but without some intervention, what I’m saying is that I’m uncertain as to the longevity of much of the industry. Widespread tenacity is a hallmark feature of the hospitality industry across the board, but they need some relief right now to keep going. Simply put, it’s not just about restaurants closing – it’s about the local communities that rely on them, the tourism they support, and the jobs they provide. The tipping legislation is just one part of a much bigger problem. Something needs to give.

As told to Hannah Twiggs