Revealed: how the restaurant chains pocket your tips

(David Sandison)

Britain's restaurants are creaming off millions of pounds of customers' tips to boost their profits, an investigation by The Independent has found.

A series of legal ploys are being used by major companies including Strada, PizzaExpress and Carluccio's to take a slice of the £4bn a year that diners leave for low-paid staff in tips.

Today, The Independent launches a campaign to improve the treatment of the country's 231,845 waiters and waitresses – and ensure that customers know where their money is going when they leave a tip.

Most restaurant customers believe staff receive the tips or service charge as a reward for good service. But our investigation has discovered that tips left by diners are being regularly used to pay basic wages, or meet costs.

Among the practices, The Independent found:

*Carluccio's, Café Rouge, Chez Gerard, Strada and Café Uno all pay their staff less than the minimum wage and use customers' tips to make up the balance in their employees' pay;

*PizzaExpress takes an 8 per cent cut of tips left on a credit card;

*One chain of Asian restaurants, Georgetown, takes 100 per cent of tips;

*Staff at one London eatery receive no basic wage at all.

Last night, The Independent's campaign won the backing of MPs from all parties and the trade union Unite.

Stephen Byers, who introduced the national minimum wage when he was Trade and Industry Secretary, said: "Action is needed now to ensure fairness, so customers know when they leave a tip for good service, it goes to the individual concerned and is not an extra sum of money for the employer or restaurant owner.

"Loopholes in the system are being exploited by unscrupulous restaurant owners. We must close the loopholes so hard-working staff get the rewards their customers want them to have."

Peter Luff, Conservative chairman of the Business and Enterprise Select Committee, acknowledged there was "exploitation" of workers in the hospitality sector. "Nobody should be paid anything less than the minimum wage. They should not have to depend on charity to get a legal wage," he said.

Sarah Teather, the Liberal Democrats' spokeswoman on business and enterprise, added: "It's great that The Independent is highlighting such an important issue and I wholeheartedly back the campaign."

In 2006, Britons spend £37.6bn spent on food and drink in restaurants, according to the British Hospitality Association. At 12 per cent, tips for waiting staff should approach £4.7bn a year.

But restaurants are using several loopholes to take a portion of the money. The practices are believed to have intensified with the rise of electronic payments and the introduction of the chip and pin system in 2006. Among the most popular is the exploitation of a loophole in minimum wage legislation. Restaurants have won the right to pay staff below the minimum wage of £5.52 per hour for workers aged 22 years and older. Staff are paid as little as £3 or £4, with the remainder topped up by tips.

In a few cases, such as at Tuttons restaurant in Covent Garden, the staff receive no "pay" at all: their wages are derived entirely from tips left by diners.

Other waiters are forced to pay restaurant chains hundreds of millions of pounds in sales fees for "administering" tips. Other establishments make deductions as a result of breakages or customers leaving without paying.

One waitress at a London restaurant complained: "Some of us work two jobs and you could be on your feet maybe 80 hours a week with no weekends. If you're earning £5 an hour and tips go to management, there isn't the incentive to give customers the best service."

The Independent looked at the practices of 12 chains that operate 1,300 of Britain's 26,600 restaurants and turn over almost £1bn a year. They include some of the biggest names in the business.

Britain's second biggest chain the Tragus Group, which runs Strada, Bella Italia, the French bistro chain Café Rouge and the Belgian beer and frites chain Belgo, also dips into tips to reach the minimum wage. Paramount Restaurants also employs the practice at its Café Uno and Chez Gerrard brands.

At the Nobu Japanese restaurant in London, waiters claim they saw nothing of a £150 service charge on a £1,000 bill and an extra tip of £100.

Gondola Holdings, Britain's largest casual dining giant with annual sales of £228m, deducts an 8 per cent administration charge from tips to staff at PizzaExpress. A waiter at PizzaExpress, Nabil Guirguis, was allegedly dismissed for talking to the media about the practice, which the private equity company insists is fair. The British Hospitality Association, which represents restaurants, denied that its members were mean – and blamed the Inland Revenue for failing to provide a clear lead. Its deputy chief executive, Martin Couchman, said that there were "legitimate" costs involved in distributing service charges and credit card tips.

"It's perfectly legal to top up to the minimum wage," he said.

"Evidence from recent controversy is that, overall, people are earning more than the minimum wage. It's legal and its one of the things that arose from the Inland Revenue interpretation, which was very confused for a long period."

Restaurateurs also maintain that their use of tips to top up, or replace, their wages incentivises staff. "Our waiters get a salary depending on how good or bad they are," said Kumar Muthalagappan, the founder and owner of Pearl Hotels and Restaurants Group.

Unite, however, believes that staff should receive all their tips. Len McCluskey, Unite assistant general secretary, argued that low paid workers deserved a better deal on tips. "The Government must take action so that everyone can tip with confidence," he said. "Customers want to know their tips are going to the hard-working staff who serve them."

The Independent is urging restaurants to run an equitable and transparent policy on disbursements to staff – and to disclose that policy on menus.

We are also calling on the Government to end the minimum wage loophole, ensuring that staff are automatically paid the minimum wage in full.

Three simple steps for just deserts

Today, The Independent sets out three simple guidelines for fair treatment of waiting staff, asking that the Government introduces 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 its staff.

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

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