Should we, could we, and what would it take?

The hospitality industry is virtually unique in the model in which it pays its staff. No other service industry practises the same system – shop workers are not tipped based on the quality of their assistance or their products, sales people do not pool their individual performance bonuses and re-distribute them based on their colleagues’ job titles or tenure.
In the words of Cousin Richie from The Bear, “Tipping in general, it’s a pretty fucked up practice… You judge a professional based on their performance, and determine how much money they’re gonna make? That’s fucking stupid. I go see a play, the actors are bullshit. I don’t pay them?” So how have we got here?
The imminent introduction of the Service Charge Bill means that we are all considering afresh how service charge works. But perhaps we should be engaging in more radical thinking, considering whether service charge works. Instead of making tweaks and amendments to a system which makes hospitality an industry outlier, is it time to abolish it altogether?


Tipping in inns and taverns has been common practice ever since such establishments existed, however it wasn’t until the the mid-20th century, when the Second World War brought significant changes to the economy and labour markets, that ‘discretionary’ service charge began to be added to bills in the UK as a matter of course, aiming to standardise income and incentive for staff.

Standardisation of distribution however has been around since at least the early 20th century, through the ‘tronc’ system (from the French word tronc meaning “alms box”, like a poor box in churches, reflecting its original use in collecting tips centrally). This system allowed for a more equitable distribution of tips, ensuring that not only front-of-house staff but also kitchen and cleaning staff received a share of the gratuities.

At that point almost all payments would have been made in cash (with the exception of cheques). A tronc system is not only more transparent for workers, it’s also more transparent for the government, for whom a cash economy is for the most part untraceable. Traceability means that they are able to charge income tax of around 20% on tronc, although it is exempt from VAT and National Insurance, as a concession to its status as separate from basic pay.

Service charge nowadays is legally discretionary, but it is mostly viewed as mandatory. Leaving aside for a moment the challenge of acquiring a mortgage, among other inconveniences of varying severity, workers can prefer Tronc as it puts more money into their pockets than the equivalent income before tax. All this means that tronc, or service charge more widely, can be better understood not as a ‘thank you’, but as a tax loophole. So why does the government continue to allow it? Now that card payments are the standard, and so all money is effectively going into the same pot prior to redistribution, isn’t a system intended for the regulation of cash simply obsolete?


We must first ask ourselves another question – what is service charge for? The much-argued ideal is that it is a bonus, reward for a job well done. That is how it is treated by government and financial institutions – taxed differently, and not counted towards mortgages. But the reality is that, in an increasingly pressured market, service charge is mainly used to prop up restaurants’ wage bills.

This is a huge source of contention. Many people argue that if a business can’t pay its staff properly, then is that business really viable? Well, no. In many ways restaurants, in an industry run under the current model, are not viable. Mandy Ying of Sambal Shiok, a famously conscientious employer, put it succinctly in a recent instagram comment: “Unfortunately staffing costs already make up 40-45% of operating costs and this is with majority of staff being on minimum wage. I have always passed on 100% of tronc (service charge/tips whatever you want to call it) to staff, which increases their ultimate take home pay to over London living wage. Without tronc you’ll find that vast majority of restaurants, even chains, will go bust. Yes the system is broken. But this is the truth of the situation.”

Customers are used to receipts that simply don’t reflect the interconnected services and resources that they truly receive when they step into a hospitality business. At the prices that customers currently pay in most establishments, someone always loses out – the farmers and suppliers, or the workers, or the owners, or all of them. Just to ensure that wages are not reliant on service charge, prices would have to rise by more than 20%. To account for the growers and makers, and to create a viable safety net for the business too, is likely to hike menu prices still higher.

The recent furore over Ping Pong’s ‘brand charge’ was instructive not only in that it exposed the truth of what service charge has really become, but also in that it provided an insight into the creative work-arounds that we can expect to see employers implement post-legislation.


The pandemic exposed the service charge issue to the wider public. For a brief time, in a period of huge solidarity with service industries of many types, restaurant-goers were horrified that furlough was being paid as a proportion just of minimum wage, to those whose expectations, housing and commitments were based on a salary far exceeding the base figure. There was curiosity about alternatives and, for the interested and informed, there was a level of understanding about what went into pricing a menu. This should have been the moment of ascension for the ‘Service Included’ movement – in reality, no service at all – which had already been gaining traction pre-pandemic, particularly on the other side of the Atlantic.

As UK restaurants began to reopen normally in 2020 a slew of businesses joined the newly minted #serviceincluded campaign and were vocal about doing so. The feeling was that, as Leroy’s Ed Thaw put it in his article for Restaurant Magazine: “getting rid of Tronc is a way for businesses to reset the conversation with their staff and be straight with their customers.” The government also saw this need – but their solution was not to do away with service charge, but to regulate it further.

The most high-profile adopter of ‘Hospitality Included’, its American name, was legendary restaurateur Danny Meyer, who implemented it at his Union Square Hospitality Group in 2015. But in July 2020, just as New York restaurants began to cautiously re-open and just as the public began to realise what tipping meant for hospitality staff, he abolished it. Interviews at the time reflected on its introduction. Julia Moskin in The New York Times writes: “Wilma Cespedes-Rivera, a bartender at Blue Smoke, a Union Square Hospitality restaurant in Lower Manhattan, has worked for the company for five years. She said that for servers, the change from tipping to Hospitality Included was painful, and many talented colleagues left for other jobs.“People understood that the goal was a healthier balance,” she said, “but it wasn’t what we signed up for financially.”

And, just like Danny Meyer and for similar reasons, the restaurants who had adopted the Service Included model in the UK also began to revert back. The Service Included instagram has not posted since September 2021, and Leroy’s website now reads: “In the current climate with a government that continues to not support our Industry this initiative is not sustainable in the long term. We have made the move to adding an optional service charge to our bills. This is purely so that we take maximum advantage of the one tax break the government gives our Industry.”


The reality was that Meyer’s staff found that they had exchanged security for stability, with a pay packet which may have been standardised each month, but fell below what they were receiving previously – and what they felt they could receive elsewhere. The tipping culture in the US is somewhat different to ours, with different pressures and problems, and the two are often compared in contrast. The greatest difference is that minimum wage is shockingly low – federal law sets it at just $2.13 for tipped employees – which means that tipping at 20-25% is considered mandatory, although it is not automatically added to bills. It is interesting to note that 2023 saw some restaurants in the US adopting our model as well as their own – adding a ‘service charge’ of up to 22%, and also expecting diners to tip 25% on top of that. This may not be in the UK, but it still serves to exemplify three things: how very broken the restaurant model has become, how much prices would have to rise to fix that model, and consequently how very hard it will be to move away from tips.

But the American system shows something else, too. That, whatever the cultural norm, people get used to it. France may be the originator of the word ‘Tronc’, but it operates a system in which hospitality pay is far less reliant on service charge. Restaurants still survive, and hospitality thrives as a viable and respected career. Japan has a thriving restaurant culture alongside a culture which frowns on tipping. We should acknowledge that these facts do not exist in isolation to the wider economy and rent structures; but in spite of these challenges there are in the UK some restaurants which successfully operate a service included / no-service-charge model. Perilla remains so committed to the principle that their acclaimed new site Morchella was opened with the same system. For them, it works.

Tom Kerridge, who operates the system at The Hand and Flowers, brought it up in a Twitter spat in 2021. Defending himself from a diner outraged at being charged £35 for fish and chips, he explained: “Those prices include everything. VAT and service. No additional service charge at all. I pay staff properly and treat their job as a professional career. Perhaps the real cost of dining should be addressed.”

To put the onus of a broken system onto the individual employer is a challenge. The experience noted by Wilma Cespedes-Rivera was of the difficulty moving from a familiar system, to an unfamiliar one which did not match initial expectation, whilst other restaurants continued to follow the old model which, for all its instability and faults, still put more money in workers’ pockets. This meant that there was a skills drain away from those ‘good faith’ establishments, making it harder to retain staff and harder to hire. Restaurants in the UK found the same. This adds weight to Hussein Ahmad of Viewpoint Partners’ thought: that to make a service included model work it would have to be adopted by every establishment all at the same time, to level the playing field. In effect, service charge would have to be completely outlawed at a governmental level. This would certainly put more money in their coffers, so why don’t they do it? Perhaps because they know the outcry it would cause, requiring an immense cultural and administrative shift and putting, as Mandy Yin points out, many businesses in immediate jeopardy.

It may be that it’s not the system of service charge that has to change, but our thinking. Perhaps Ping Pong’s cynical action was the grain of a good idea – service charge could be re-named, perhaps to ‘Tax-Free Payment’ – still used as it is currently, but with a name that gives greater and more realistic understanding for both staff and customers. And, whilst we are re-naming it, we could remove the somewhat false idea that it is ‘optional’. Doing so would provide a guarantee for organisations such as the Living Wage Foundation, mortgage providers and also job advertisers, greater clarity for customers and more stability for staff.


Of course, the tax-exempt status of service charge relies on its discretionary nature – it is not in the government’s interest to highlight or formalise a tax loop in one particular industry, and so we are forced to continue the charade and the uncertainty. When habits and structures are so entrenched, even when a change would be beneficial, the cultural and practical leap can be seen as too painful to undertake at scale. It may be too onerous for an individual business to challenge a whole model, but there are still some things that we can all do to make working and existing within it more sustainable.
Businesses can foster a culture of financial transparency with staff, empowering them with better understanding of the challenges and a collaborative approach to the possibilities. Employees can use this understanding to be empathetic towards employers acting in good faith within a bad system. And we can all be vocal about the realities of operating and working within our industry; so many of the organisations who aim to help – the government, the Living Wage Foundation and others – just do not have the depth of knowledge of the mechanics and ecosystems of hospitality businesses, and the lives of those who work in them, to make true, positive impact. A little more understanding between all of us would be a great start.

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