My Lords, this is a Bill entirely about fairness. Indeed, a Member of the other House said to me only this morning, “What is there not to like?”. It was started in the other place by my honourable friend the Member for Watford, Dean Russell, and then continued—for reasons which I will not bore you with—by my honourable friend the Member for Ynys Môn, Virginia Crosbie. What the Bill does is quite simple: it creates a legal obligation on employers to pass on tips, gratuities, service charges—for ease of reference, I shall refer to all these as “tips”—to employees in full. The only deductions permitted are those required or permitted under other statutory provisions, specifically tax law.
Which of us has not wondered, or indeed asked, a waitress or waiter whether that person gets the extortionate service charges that often end up on the end of our Bills? We do not expect businesses to take a slice of anything we pay for service, so this Bill will create a level playing field for businesses that already pass on tips to workers in a fair and transparent way. At the core of the Bill is the creation of a legal obligation for employers to distribute all tips to workers without any deductions; this includes mandatory and discretionary service charges which are added automatically on to customers’ Bills by some hospitality venues. When customers pay service charges, they—we—expect them to go to workers in full, and they jolly well should.
Ensuring that tips are passed on to workers in full, with no deductions by employers, could make a real difference to workers’ incomes. We are talking typically about workers in hospitality such as restaurants, but it would also apply elsewhere; for instance, in taxi services such as Uber, croupiers in casinos or hairdressers. Where employers receive tips directly from customers or have control or significant influence over the distribution of tips which workers receive directly, the Bill will create that legal obligation for them to distribute those tips to workers in a fair and transparent manner. The obligation will attach to the total amount of the qualifying tips paid at, or otherwise attributable to, a place of business of the employer.
To clarify, the Bill does not cover tips which employers do not receive or have control or significant influence over. For example, if workers receive cash tips, perhaps put in a physical pot, and divide them between themselves without any control or significant influence from the employer, those tips are not affected by the Bill. It will not interfere with existing tipping arrangements where employers do not influence or make deductions from tip allocations.
It is important that we retain flexibility for employers to choose how to distribute tips so long as that distribution is fair. Some employers may choose to use a tronc system to distribute tips—I actually knew what a tronc system was, but, for clarity, it is an arrangement commonly used in the hospitality sector where an employer delegates the collection, allocation, and distribution of tips to a person or persons who are known as a “tronc master” or a “tronc operator”; that person is often, in a restaurant for instance, the head waiter. The Bill does not seek to regulate the operators of independent tronc systems, although the employer will need to be satisfied that it is fair overall to make arrangements for distribution through a tronc.
My Lords, it is a pleasure to support the Bill sponsored by the noble Lord, Lord Robathan, and to anticipate its provisions finally reaching the statute book. In opening Second Reading, he outlined the Bill’s functions with thoroughness and lucidity. I beg to say that the longer I spend in this building the more I realise that we are all on a political journey. I hope that his enthusiasm for and championing of a Bill that makes a real and positive difference to some of the lowest-paid workers in our country is an indication that he has come a long way from where he was in 1997-98, as evidenced by his voting record on the then National Minimum Wage Bill.
I began by saying that it is a pleasure to support the Bill. It is an equal pleasure—a number of noble Lords may repeat this remark—to do so without caveat or reservation. It engages a simple question of equity: money given in tips to serving staff should be theirs without fear of depredation from their employers. This question is particularly acute when the hospitality industry is attempting to regain its feet after the pandemic and is being further buffeted by rising energy prices, the cost of living crisis and, more importantly, labour shortages. This should encourage people to work in the industry, knowing the prevalence of the problem that it addresses.
The Bill is comprehensive in scope, extending the legal right to a fair allocation of tips not merely to directly employed workers but to agency staff and those allocated tips through a third-party tronc scheme. I must admit that I did not know what a tronc scheme was until I read the Bill. Crucially, under Clause 4, it ensures that workers receive tips no later than the end of the month following the month in which they were paid by customers. I also welcome the measures in the Bill giving adequate scope for enforcement, and commend those involved in the Bill’s drafting and ensuring its passage through the other place. I look forward to these legal protections being extended to hospitality workers as soon as possible.
My Lords, I too thank my noble friend Lord Robathan for introducing this small but important Bill, especially as, like many noble Lords, I have been a receiver of tips, not only a giver. Although the loophole has been closed so that tips cannot be relied on by employers not paying the national minimum wage, tips are often given to those on that lowest lawful wage and can be a vital part of overall wages. Back in the day, it was so encouraging on a long shift in the local gastropub to open the drawer and see a number of paper notes along with the coins in the tips bowl. It really was an incentive for the rest of the shift and an extra bonus when saving for university.
It is only right to have a distribution policy that is fair and for employees, not the employer. It is often a personal payment, such as by a lone woman travelling home at night in a cab or Uber, when the driver gets you home safely and you know that they have waited until you are safely inside the building before driving off. These extra kindnesses really matter and should be rewarded personally.
I welcome, in Clause 6, that there should be a written policy to enable claims to be taken to the employment tribunal, giving employees the requisite information, but it would be good if that policy were simple enough to be on display for customers. I think Clause 6 limits it only to workers. How tips are distributed can affect whether a customer wants to give a tip. It can also change the way that tips are given. Like my noble friend Lord Robathan, I have often asked waiting staff and given cash if I am informed that they will not get a tip given by a card payment.
The Bill has also intrigued me. Although I am aware that my noble friend cannot answer the following question directly, I ask: what happens to gratuities added to bills paid by card in the dining rooms or guest rooms in Parliament? I hope that he will pass that question to the relevant authorities so that noble Lords will know the answer.
My Lords, if it were not for tips, I probably would not be standing here today. In the mid-1960s, I was living in New York, studying for my master’s degree in business administration at Columbia University. Sadly for me, I had no money, and New York city is no place to be poor, so I got a job as a waiter at a restaurant enticingly called Your Father’s Mustache. It was located in Greenwich Village; it was noisy and crowded, and it sold beer and cocktails, burgers and huge sandwiches—I loved it. I worked four nights a week, starting at 9 pm and finishing at 3 am. It was hard work, especially because, by 8.30 am the next day, I had to be at my class, all prepared. My basic pay was 99 cents per hour, minimum wage, plus tips. Being English, at the time of the Beatles I achieved some degree of notoriety, and I was good at hustling for tips. I would earn about $60 per evening—and that was in 1965.
In the days before credit cards it was all about cash tips. I learned about dynamic tipping—assessing the customer and working out how best to maximise my reward. Most important of all was positioning the change on the tray so that he took the coins and notes nearest to him and left me with the tip I felt I deserved. For me, it was the difference between happiness and misery. I secured my MBA, returned to London, had a fulfilling career in IT, and here I am today. Without those tips, who knows how it might have turned out?
All this is to emphasise as strongly as I can that my heart and soul are with the recipients of tips. I know just how crucial these payments are to those who work in pubs, bars and restaurants. I must thank the noble Lord, Lord Robathan, as well as Dean Russell in the other place, for introducing this Private Member’s Bill, which now has Government support. It is a vital Bill, and when it becomes an Act it will give certainty of earnings and security to many hundreds of thousands of people who work in the hospitality industry.
My Lords, it is a pleasure to follow the noble Lord, Lord Mitchell. He raised a number of interesting points, particularly around agency workers, credit card fees and new premises. I hope the Minister will be a in position to respond to some of those, because I hope that the Bill will get a speedy passage through the House. I am particularly grateful to the noble Lord, Lord Mitchell, for explaining the concept of dynamic tipping to us, which he clearly made great use of if, all those years ago, he was securing $60 per evening—which was then a very significant sum of money—to assist him in his studies.
As the noble Lord, Lord Robathan, said, what is there not to like? I subscribe to that view. This is about fairness for the 2 million people who receive tips as part of their employment. As the noble Baroness, Lady Berridge, said, this will help to increase low incomes, and that aspect of the Bill should not be understated.
Like others, I share the concern, as a customer, around what happens when I pay a tip or a service charge, and what the meanings of the terms that are used on the bill actually are. We should say that many businesses operate good systems for ensuring that tips and gratuities reach the staff customers intend them for. However, when I pay a service charge, I expect it to go to the staff providing the service, through a system that is transparent and which they understand. I have not seen a case for any part of the service charge being deducted for the employer’s benefit, although I think there is an issue around the credit card charge, which the Minister might like to clarify when he replies.
The new code of practice is going to be extremely important. It will need extensive publicity to ensure that the new requirements are being met, particularly those in Clauses 2 and 3. That will require substantial publicity through unions and social media. I hope the Government will support that process and that the Minister might be able to advise the House of the Government’s intentions to make sure the publicity reaches those who will benefit from it.
My Lords, there cannot be anyone in this House who has not been affected by, and thought about, tipping. We all face the question of how much, and whether an amount added automatically can be removed without embarrassment. On many occasions, we wonder about the etiquette of tipping or not tipping. I had thought that it was less likely that many of us had been on the receiving end, except when we were younger. But, having listened to the noble Lord, Lord Mitchell, I will never again not think of how a young person to whom I am giving a tip might in fact be a future Peer.
Nevertheless, there are both detailed and broad questions that can be raised. The insertions that Sections 27D and 27F made into the Employment Rights Act have fairness as their theme. It is not defined. How can it be applied, or how can issues between employees and tronc operators be handled when the troncs are operated independently of the employer? The tronc system also means that, if a customer really wants to reward a particular employee, the tip may still go into a pool if that is how the tronc system is set up. Where tronc systems exist, there is little incentive for employers to offer much beyond the legal minimum wage levels. The more they pay, the higher the national insurance and other wage-related costs mount, which does not apply to tips, and, if the employer pays more, he or she will still remain obliged to distribute the tip income.
Proposed new Section 27G requires a tip to be paid out by the end of the month following its payment by the customer. But there is no definition of what is meant by paid. Charges in hotels may be accumulated during the stay: for example, the tip might be added at the time of the meal, but payment by the customer might be added long after. Payment might be delayed or even never received, or the charge in question to which a tip was added at a particular time might have to be reversed or reduced later due to error or disputes.
While the Bill rightly calls for information to be supplied to the employee, it could be argued that best practice means that explanation of the treatment of tips and service charges should be included for the customer on menus and tariffs. Given the lack of uniform standards, and the variety of systems and technicalities involved, it would be difficult to explain these in simple terms, let alone ones for which there is room on a menu.
My Lords, it is a great pleasure to follow the noble Baroness, who spoke with her customary lucidity and insight on some legal points, which I may also address.
I congratulate my noble friend Lord Robathan, in presenting the case so powerfully and with such clarity, and my honourable friends in the other place, the honourable Members for Watford and Ynys Môn.
I will come to the point made by the noble Lord, Lord Browne of Ladyton. I very much agree about the great length of discussions, consultations and abortive legislation that we have had on this issue. We need to address this.
The measure is simple and straightforward. There are some profound legal issues, and indeed some cultural issues, which the noble Baroness, Lady Deech, touched on. I share some concerns that she has addressed about how the practice of tipping has come to be seen as a substitute for wages in some cases. It is growing more extensive: I am told that, when you buy a sandwich in some delicatessens, you are invited to make a tip to the person in the shop making it for you. This is not an attractive practice. What happens in Singapore, for example, where people just do not tip, has its attractions: then, the wage reflects the job that is done.
However, we are where we are. I strongly support this measure, because I do not think that we will get to that position in the short term, and we need something that is fair to employees, as my noble friend said. The current system is not. Only in cases where there has been much adverse publicity have some notable restaurant chains, such as Pizza Express, altered their practice. They used to deduct a portion of the tip made on a credit or debit card payment and retain it. That is clearly unfair. I do not think that it happens so much with cash payments made to employees: that would be contrary to Section 1 of the Theft Act, and I do not think it necessarily happens. But during the pandemic, we have seen more people paying their bills by credit or debit card: it is clearly the norm.
My Lords, it is a real pleasure to contribute to this debate and to follow very well-informed contributions, based on experience. I pay tribute to the noble Lord, Lord Robathan, for introducing the Bill, to my noble friend Lord Browne—I do not think I have ever heard him make such a positive speech on any topic—and to the noble Baroness, Lady Berridge, who made some interesting points. The questions of the noble Lord, Lord Mitchell, on agency staff and credit card charges are obviously very important. I do feel for the Minister: he thinks he is going to be introducing something universally popular and we are all going to say, “Well done”, and he ends up with a bunch of technical questions; but that is us doing our job. The points made by the noble Baroness, Lady Deech, about the culture of tipping were very interesting and not something I had thought about before today. I thank her for that, and we must simply see this as a step in the right direction, not the destination. The points about information for customers, so that they know what is happening to the payments they are making, were very important. The awkwardness for the employee when asked if they will get the tip—referred to by the noble Lord, Lord Bourne—which forces them to decide between being honest and undermining their employer, is a difficult situation, even though we as customers are asking with the very best of intentions. That is something we have all encountered.
The Labour Party has obviously been supportive of this direction of travel for a very long time. There is a great deal of overlap between the position of these Benches and the measures in the Bill. We think that all tips, service charges and gratuities should go to workers in full, and that employers must not charge processing fees. The Bill’s provisions cover agency staff, which is good, and give workers the right to ask for records and recourse, which is vital. I thank the trade union Unite, which has for years been raising and campaigning on this issue. Alongside this, we are committed to bringing in a mechanism for collective grievances at work which would enable employees to bring a grievance against their employer to ACAS, as a collective. We believe that this would help to enforce fair tips more strongly.
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The Bill includes provisions for the Secretary of State to issue a statutory code of practice which will promote fairness and transparency in relation to the distribution of qualifying tips, gratuities and service charges, and help tribunals determine whether it is fair for an employer to make certain tronc arrangements. Employment tribunals must have regard to relevant provisions of the code when determining whether an allocation of tips, or making certain tronc arrangements, is fair, and the code of practice will consider some of the factors which may be relevant to fairness.
The reason for the code is to capture the nuances of fair tipping practices across and within sectors. We need to ensure that we put in place a framework that appreciates the differences from business to business and allows flexibility. However, to reassure noble Peers, there will be a full consultation on the code with subsequent approval by both Houses—or not, of course.
Transparency is a crucial part of the Bill and information plays a significant role. The Bill creates an obligation on employers to have a written policy on dealing with tips, which must be made available to all workers. In order for workers to understand whether their tips have been distributed fairly, the Bill also creates a new right for workers to make a request for information relating to their individual tipping record and the overall amount of tips that the business has received in a given time period. This does not add any onerous obligations or regulations on an employer or business—apart, one might say, from writing a policy—for most employers will already have a system in place for the fair distribution of tips.
The Bill will be enforced by workers through the employment tribunal system, and provides tribunals with remedies and situations where an employer has made deductions from tips or not allocated tips in a fair and transparent way. For general knowledge, I point out that the majority of employment disputes are settled before they reach an employment tribunal, and we expect referrals to such a tribunal under the Bill to be relatively rare or unusual.
If an employer does not allocate tips fairly between workers, the employment tribunal can order the employer to revise any allocation of tips that it has previously made, recommend that the employer deals with tips in a certain way or make a payment to a worker or a number of workers of the employer, so that they receive the tips that they should have received. It might also compensate workers for any related financial loss attributable to a breach of these provisions by up to £5,000.
I hope this gives an overview of the Bill and the provisions within it. As my honourable friend down the other end said, “What is there not to like?” Both parties opposite, Labour and the Liberal Democrats, raised no problems with the Bill during Committee in the Commons—they raised a few issues, but not real problems—and support the Bill.
I hope noble Lords from all sides of the House will join me in helping the Bill succeed. It is an opportunity to bring back change that will positively impact those businesses that are already doing the right thing and, especially, those workers who receive tips. I beg to move.
That last point leads me to ask why this has taken so long. The first call for evidence for this legislation was put out by the then Department for Business, Innovation and Skills in August 2015. Since then, we have had five different Prime Ministers, eight Secretaries of State and innumerable reshuffles among junior Ministers. Indeed, not only does the government department that published that call for evidence no longer exist, even its successor department has gone the way of Nineveh and Tyre. This measure has been included in two general election manifestos and four Queen’s Speeches, and has been the subject of two consultations. It is fair to say that, were the staff who are the subject of the Bill to adopt such a laggardly approach to their own work, the allocation of tips would be a purely academic exercise.
This should cause us seriously to reflect on the efficiency of government over the last eight years. The Bill is limited in scope, rights an obvious wrong and has cross-party support. If a measure of such comparative simplicity can take eight years to pass, something has gone profoundly wrong with our lawmaking in this country. I will resist the temptation to reach outside the scope of today’s proceedings to consider the silting effect that the necessity of dealing with Brexit and its consequences has had on our legislative efficiency, but will merely leave it hanging in juxtaposition to my points earlier.
I welcome the Bill and once again commend the work that the unions, other workers’ campaigning groups and parliamentarians on all sides have done in ensuring that it is now likely to reach the statute book. It will have my full support as it passes through your Lordships’ House.
I agree with the noble Lord, Lord Browne, that it is sad to note the many commitments that have been made on this matter. I particularly cite October 2018, when the Conservative Party made a commitment to bring this into law, but it has taken four and a half years since then to legislate. It is also sad to note that it is necessary to use the law to achieve what should be normal employer behaviour. As my noble friend said, what is there not to like? Many or most employers, apparently including Uber, pass on tips paid electronically, but it is not always the case.
Sadly, the compensation orders against rogue employers, in Clause 8, might not be enough. I hope that the media will keep a watchful eye, as it is really only their revelations, with the transparency they give and the shame attended to them, that bring about the best sanctions. I anticipate that we will see some class actions brought in response to enable employees to have their requisite compensation orders and get their money back. I welcome the Bill and hope that it has a swift passage through Parliament.
I would like to raise a few areas where I believe we are at risk of unintended consequences. I ask the noble Lord to consider these points, and I would welcome the opportunity to meet him prior to the Bill going to Committee.
The first point concerns agency workers. I fully understand why, at first glance, it seems equitable that agency workers qualify for sharing in the tip allocation on the same basis as directly employed staff. But I am told that agency rates have now gravitated upwards, to the extent that there is now an implicit tipping share built into the daily fee. Therefore, if agency people also share in an establishment’s tips, does it not mean that, in effect, they get the benefit of the tip twice over? That cannot make sense. If it stays as the Bill proposes, will that not mean that many staff will move towards being hired as agency workers rather than direct employees? That cannot be a good thing.
The second point concerns credit card payments. I know that fundamental to this Bill is the concept that employees should participate in the sum total of all tips, with no deductions. However, I think credit card charges should be exempted. If there is a built-in tip of, say, 12.5%, and the total bill is paid by credit card, which most bills are, then the establishment will have to pay the credit card charge on not only the base cost but the tip portion of the bill. Surely the credit card fee is a direct cost of the transaction, and the restaurant and the staff should bear that cost proportionately. My suggestion is that a maximum deduction of up to 2% should be netted off from the tipping pool. That does no more than cover the additional cost to the business arising from the customer’s generosity, and with a maximum rate set to avoid any abuse or excessive deduction from an unscrupulous operator.
Finally, I would like to address the issue of multiple-site operators. The Bill as it stands states that the tipping pool should originate from the bar or restaurant where the employee works. That makes sense. But there are many restaurants and bars which have associated premises, and it is not uncommon for staff to be transferred from one to another. Imagine a situation where a successful restaurant wants to open another restaurant and wants to transfer skilled staff from one to the other to get the place up and going, or where a business operates a large establishment which generates significant tips and a smaller restaurant a mile down the road with a much lower level of tips. New restaurants take time to find their feet and build up clientele. Operators will, from time to time, need to move staff from one premises to another, perhaps to cover illness or staff shortages. If the Bill stays unamended, it will remove the incentive for staff to move from a successful restaurant to a start-up, or from a larger site to a smaller one. That does not make sense. Surely a group should have the facility to amalgamate its tipping pool across multiple restaurants.
As I said, I would welcome the opportunity to discuss these issues with the noble Lord. The hospitality industry was battered by Covid, and now it is being battered by inflation and staff shortages. We have a good Bill before us. We should do all we can to minimise the burden on employer and employee alike.
Like other speakers, I am absolutely delighted to give our support to the Bill. I wish it full speed through all its stages in this House.
Let me range to a broader level. Will this legislation serve only to cement out-of-date pay practices that will serve to inhibit the hospitality industry’s recruitment efforts? Pricing and employment practices in that industry need to be brought into line with best practice. Instead of relying on tips, employers need to be able to set salaries that offer fair and competitive levels of pay and provide prospects for promotion, bonuses and recognition of long service. The employee needs to know exactly how much they will be earning and ensure that they benefit fully from pension and other pay-related benefits such as holiday and sickness pay. Those pay-related benefits should relate to their total earnings. Those full earnings should be liable for tax. Employees and employers affected by tips should be subject to the same tax and national insurance contributions as any other business. They are not now, because of the special arrangements affecting tips. Ideally, all prices quoted by service and hospitality businesses should be fully inclusive, with no additions expected. Customers would be relieved and grateful.
In sum, the Bill as it stands needs more definition, which may yet be found in the guidance to be issued. But, overall, it is backward-looking rather than forward-looking, and many of us wish that there could be some end or curtailment to the system of tips. Will the Minister tell the House why it was thought necessary to set in stone schemes that could be said to be out of date?
The Bill is attractive because it will end that, and I have just one or two questions. It is attractive not least because now when we go into restaurants we will not have to ask the employee, “Are you getting the tip?” I asked this question last night, and I am pleased to say that they were. Every time you go to a restaurant, you feel obliged to ensure that the tip is going to the employee. Clearly, in many cases, it is. I do not want to suggest that all restaurants and hospitality outlets are unfair. They are not: I think the great mass are now passing it on. But this will rectify the practice.
I have a concern about publicity. We need to ensure that there is publicity behind this legislation, so that not just employees but members of the public—bearing in mind that, in this context, many members of the public will be coming from overseas—are aware of the practice, so that they can reflect that in how they give the tip and be assured that it is going to the employee.
There is a case about the tronc system, which the noble Baroness, Lady Deech, referred to. When somebody leaves a tip, they may want it to go to just the individual who is serving them. On the other hand, a tronc system will mean, in practice, that some of that goes to the kitchen staff and those behind the scenes. I would personally want to do that, but not everybody does. This needs to be dealt with in separate legislation. This piece of legislation should go forward: it has taken too long already.
This brings me back to the point made by the noble Lord, Lord Browne. I wanted to address this in speaking briefly today. We need to look at a situation where something that has virtually universal support takes at least eight years—admittedly, some of that when the pandemic slowed things down a bit—to get to the statute book. It is crazy. Something that is divisive, in the sense that it divides opinion, would get to the statute book much more quickly. Can the Minister take this back to his department and push for the issue to be taken further elsewhere? Where there is virtually universal agreement on something, can we not have a fast-track system to ensure that it gets to the statute book? Listening today—and I am sure it was the same in the other place—nobody really objects to the Bill in fundamental terms, and it would be very desirable if we could find a way of fast-tracking it, perhaps from this House, where we are more used to working across the aisle.
With that, I once more congratulate my noble friend on what he has done in ensuring that this is the focus, that there is unity here and that we are able to pass this legislation.
It is useful to outline where we are as a party, where that overlaps with the Bill and what to do when we think things are not working correctly. As was indicated in the debate, how we advertise and ensure that all employers are aware of this change in law is very important, as is how it will be enforced and how staff can raise problems in the confidence that doing so will not be detrimental to them. There should be no deductions, including processing charges, apart from statutory taxes. The written policy on how tips are allocated needs to be made clear to staff when they start employment, and employers should ensure that all tips are allocated fairly through a TRONC who is genuinely independent of the business. For larger business, it should be stipulated that the TRONC should not be chosen from senior management personnel and should have the genuine consent of the workforce. Obviously, smaller business would not be subject to that, as it would not be practical. This should be underpinned by a statutory code of practice, be extended to agency workers and enforced by employment tribunals through ACAS. We would also reform and update the HMRC E24 guidance to simplify it, ensure it reflects updated requirements and make it easier to understand.
This is a welcome Bill. It may not deal with absolutely everything on this topic, but when the Government do something sensible, we should acknowledge that—perhaps balloons, a carnival or lighting some candles might also be appropriate. After the week I have had with the Retained EU Law (Revocation and Reform) Bill, it is a pleasure to welcome this, and I look forward to the Minister’s response.