Tipping - a looming problem for the restaurant business
3 Jan 2004 by JR
Bob Cotton, chief executive of the British Hospitality Association whose members employ over 600,000 in hotels and restaurants, has spent most of this year hearing confessions.

It is a role to which he is physically well suited. A slightly portly, dapper man who has spent 35 years in this profession his love of good food is obvious. He combines therefore the right build and the right experience to be the 'restaurateurs' father confessor'.

But the issue, how restaurants administer the tronc (literally trunk and initially the poor box in a church) into which they literally place all tips left by their customers on a weekly basis, is beginning to exasperate even Cotton. Not just because over 400 individual restaurant and restaurant groups are under investigation by the Inland Revenue with some facing fines of up to 10 million but also because he believes that whatever agreement is finally arrived at will inevitably lead to higher menu prices.

A tronc system demands transparency so that it can be demonstrated that the restaurant has had no influence over its distribution in turn assuring customers that what they leave as tips goes to those who have served them rather than to the restaurateur. This means that the troncmaster must be independent of the restaurant's management and that the total left is distributed fully. "The broad principle of the tronc," Cotton explained, "is that what goes in must go out." But a lack of clarity, changing legislation and misbehaviour by certain restaurateurs is muddying an already highly complicated issue.

"The rules on who can and cannot be the troncmaster are clear but tough," explained Cotton citing the case of the owner of a 50 seater restaurant in the country who recently failed to notify his local Tax Office as to who was the troncmaster and was subsequently fined œ100,000.

The spread of credit cards has complicated the distribution (dividing cash was obviously much easier) as these have to be processed by the restaurant which even has to reimburse the tronc for the commission it loses to the credit card company on the tip.

The reason, incidentally, that the majority of restaurants include the word optional next to the service charge is that this supposed arms length transaction saves the restaurateur from paying the National Insurance (12.8%) on the service element.

Certain restaurateurs have, however, behaved most unprofessionally by withholding a part of the monthly tronc (I have heard in some cases of as much as 500 a month) to cover the costs of breakages. This Cotton absolutely condemns.

But the major source of confrontation between the restaurateurs and the Inland Revenue is over the formers' implementation of the minimum wage first introduced in 1999 ago by the Department of Trade and Industry.

The most widespread 'sin', at the root of the biggest fines, is that hoteliers and restaurateurs have been paying less than the minimum wage as their house pay and then using the money from the tronc to take the hourly pay above the legal level. As this goes back four years the sums involved are large. Equally considerable is the level of acrimony on the restaurateurs' part who cite in their defence confusion between the DTI (responsible for the minimum wage) and the Inland Revenue and the fact that most have had their past four years accounts accepted by their accountants and local tax offices, approval which would have included how they handled staff remuneration. Cotton is keen to point out that this legislation has not been amended in the past four years.

What is happening in the UK now bears a striking resemblance to what has been happening for the past 15 years in the US where an initial investigation into the earnings of casino dealers led the IRS to turn their attention to restaurants and an estimate of lost tax revenue of US$9 billion. Lawsuits followed which established that tips are a transaction between the customer and the waiter which the restaurant cannot touch nor can the restaurateur force the waiting staff to declare more tips. As a result the IRS has turned its attention on the under reporting waiting staff whilst simultaneously inviting restaurateurs to join two voluntary programmes (known as TRAC and TEPA) to avoid potential back audits and assessments. And as Gary Levy, the partner in charge of Hospitality with accountants JH Cohn, advises his numerous restaurant clients, "If the IRS invites you to a party, you go!"

This is similar advice to that being proffered by Steve Wright, a partner with accountants Vantis plc who helped David Moore, proprietor of the highly acclaimed Pied a Terre, defend his restaurant against an Inland Revenue demand for œ187,000 that was eventually settled for œ34,000 - which itself has knocked a big hole in this year's profits according to Moore. "The Inland Revenue is not going to grant an amnesty over this particularly because of the manner in which so many seem to have flouted the minimum wage legislation. The sooner restaurateurs realise this and start talking to the Revenue the less painful the penalties are likely to be."

And the sooner much needed light will be shed on a grey and murky area. What was most encouraging talking to Wright and Cotton is that both believe that the British tronc system is the fairest and most efficient method of rewarding restaurant staff. "Customers will always want to reward good service," Cotton explained "and a tronc system which awards points and therefore a higher share of the tips to the more experienced waiting staff and incorporates the chefs will generate the vital team effort. Cash tips are divisive, whilst the French system of an automatic 15% service charge is too rigid, non-motivational and is also liable for VAT."

The tronc system may be motivational but at the moment its guidelines are less than satisfactory operationally leaving many who visit British restaurants confused as to what optional means, why the service amount ranges from 10-15% and whether all that they leave will reach the waiting staff.

Cotton pointed on his desk to a draft 'Guide to Tronc Masters' which he hopes the Revenue will agree to so that it can become operational in 2004. But until the present cases are settled they seem reluctant to do so. In the interim the main losers are the waiting staff and the restaurant goers. I believe both deserve far greater clarification of the whole system, immediately.




Michael's, an undressed cafe in London W2 | Financial Times | 04 Jan 04

Michael's in Queensway is unique amongst all the cafés and restaurants I have visited.

It does not take bookings, in fact there is no phone number listed on its menu. The café has never experienced a bad debt and it is also one of the very few places where it does not matter whether you spill any of your food. As Michael's customers are only wearing a dressing gown at the most when their food is served it is most unlikely that they will run off without paying into the middle of Queensway or bother about a drop of special house salad dressing down their legs.

But Michael's is well worth visiting not just for the honest quality and value for money of the food on offer but for its location inside the magnificent, if rather faded, Porchester Baths.

This 1920's corner site comprises Turkish saunas and Russian steam rooms as well as a cold plunge and massage rooms and is described by the spa guides as 'blissfully old fashioned'. But to its many regulars it is one of London's best kept secrets particularly those who gather on a Saturday and during and after their steam bath sit, chat and set the world to rights.

Michael fuels their opinions with every single variation on an English breakfast; five big bowl salads - tuna, prawn, Greek, cottage cheese and a spa special; burgers; vegetarian quiche; grilled chicken breast; baked potatoes and sandwiches with various stuffings. Most of which seems to be washed down with very welcome pots of tea. Portions are generous and prices pretty reasonable with most main courses between £5 and 7 and the breakfast under a fiver.

The presentation may not be overly glamorous but then neither are the red faced customers - however refreshed and virtuous they may look and feel.

The Porchester Spa, Queensway London W2 5HS. 020-7792 3980
open 1000-2200
Men: Monday, Wednesday and Saturday
Women: Tuesday, Thursday, Friday and Sunday 1000-1600
Mixed: Sunday 1600-2200
Last orders: Mon-Sat 1930, Sunday morning 1530, Sunday evening 1930.