Restaurant bills could rise by up to 10 per cent after the Government decided waiters’ tips can no longer count towards the minimum wage, diners have been warned.
The practice of using gratuities and service charges to raise low wages to the threshold of the minimum wage is common in large bars and restaurant chains.
At present the minimum wage is £3.40 per hour for teenagers up to the age of 18, £4.60 for those up to 21 and £5.52 for older workers.
But the threshold will be increased this autumn, when the ruling on tips takes effect, potentially raising costs for half of the UK’s 30,000 restaurants and cafes.
“Currently, the average base pay for waiting and bar staff is around £3.50-£3.75 an hour plus tips,” said Andrew Garbutt, director at PwC, the accountancy firm which produced a report on the wage change.
“In fact, base pay can be as little as £2 an hour. However, by the time this change is introduced the minimum wage will be set at £5.73 an hour, with tips on top.”
He said that as wages were usually restaurants’ largest outgoings, “the impact ... of this change will be to raise costs for the average chain by up to 10 per cent”.
The increase is expected to be passed on to diners at a time when restaurants are already struggling to cope with the economic downturn.
Julian Yew, head of the hotel and leisure group at Wedlake Bell, a City law firm, said: “Successful restaurants, hotels and bars will try to pass on what is effectively an increase in payroll costs to their customers. However, companies that are already struggling financially may find it much harder to do this as it will further weaken their custom and profit margins.”
In Britain restaurateurs are entitled to manage tips, or service charges left by credit card. As in the US, the expectation is that the distribution of the tips, coupled with a small hourly wage, will raise earnings to at least minimum wage level.
Restaurant operators argue that putting waiting staff on the minimum wage could end up costing staff money.
“Someone who is currently earning £3.50 an hour and having their wages topped up by discretionary charges paid by credit card will not incur national insurance charges beyond the £3.50. If they were to go from £3.50 to £5.52, they would have to pay national insurance on the difference,” said Bob Cotton, chief executive of the British Hospitality Association.
His view was shared by the heads of two restaurant groups, who predicted that they might have to keep a greater proportion of the service charge as an administration fee to offset increased wage costs.
“The overall effect could be waiting staff will see their overall salary decrease and the amount of tax they have to pay increase,” said one.
Published on Telegraph.co.uk