Service charge

Peter Davies explains why removing service charges is an expensive one-way street for hotel operators.

Every few months I read that another hotel company has made the decision to abolish service charges, tips, trunk diets and everything that goes with it. Most of these companies do it for what they really think is the right reasons and with the best intentions and motives. Some do it to confuse, some to be different, and some just to try something new. Lots of people praise them and social media is ringing with applause, and you’d think what is currently just a trickle would soon turn into a downpour. But it never does. Very few follow and among those who do, some end up regretting it and going back.

The current service and trunk fee model exists for a reason and that is because, when well managed, it works. It benefits staff, businesses and, ultimately, consumers. Tax breaks alone are worth around £ 1.1bn per year for the industry as a whole, and that’s a big void for anyone to make the switch.

Dropping service and trunk fees and moving to an all-inclusive pricing system and staff receiving salaries without trunk leads to additional costs through VAT, national insurance, pensions, apprenticeship tax, student loans, etc. And these costs are inevitable. No one is suggesting that these costs are automatically “bad things”, but they are real and cannot be simply ignored or removed. The government is not going to change the rules to make it easier for businesses to make this change, so someone else will have to foot the bill. That person will either be the business through higher costs and lower profits, or the employee through reduced take-home pay, or the consumer through increased overall cost of their experience.

Whenever an operator tells me they are considering this change, there are always a number of reasons. It’s always worth exploring, as very often the solution to a problem (or a perceived problem) can be found without losing the benefits of their current system. Some common themes include:

Tipping has historical links to slavery, so we should abolish itHave
This may have a grain of truth in the United States, although there is no generally accepted view on this point. But there is no evidence for a bond of slavery in the UK. Britain invented the tip during the Tudor era, some 150 years before the slave trade began. Let’s not forget that American restaurateur Danny Meyer, an advocate of “hospitality included” and no tip, accepted that it didn’t work and went back – because his staff preferred it that way.

Staff have extremely fluctuating income, which means they cannot budget, plan or access credit or mortgagesHave
This may have been true 10 or 15 years ago, but many service fee-funded trunk systems have evolved over the years to meet staff’s understandable desire for a greater level of certainty. With careful budgeting and planning, any Troncmaster should be able to give its members a degree of certainty that, in normal times of negotiation, their trunk will not fall below a certain level. If that doesn’t happen, the problem isn’t really the service charge; it’s that the trunk is not being managed as efficiently as it could and should be.

HMRC’s decision to exclude Trunk from leave meant our staff had to survive less than 80% last year.Have
The Chancellor’s decision to exclude trunks was shameful, all the more so (as we now know) that this decision was initially based on a misunderstanding of how modern trunk systems work and that they are much more than tips in cash. Not that this offers much solace, but there has been equally shameful treatment of millions of other workers unfairly excluded from support schemes. There is no doubt that the hotel staff have received a slap in the face from the government, but are we really suggesting that the best response is to chop off our arm in return? Arguably throwing away the benefits of the service fee and trunk only rewards the Chancellor for his mistreatment of the industry, and as we move towards a post-pandemic world without lockdowns and government-mandated shutdowns, that’s surely an unnecessary answer.

Customers don’t understand it and wonder if they should pay for itHave
It is true that a small minority of businesses do not play fair with their staff and clients. It happens in all sectors of the economy and society, but of course it gives the system a bad name and unfairly smears others with the same brush. In my experience, the overwhelming majority do the right thing and act in a way that most reasonable people would consider to be right. The problem is, we rarely talk about it. I normally dined regularly at companies that didn’t tell their customers about where the money was going, even though I knew firsthand that trunk systems worked perfectly fair and ethically sound. Be proud and forthright about running a trunk system – most will be happy to hear you do it.

We should not be asking customers to pay staff salaries; we should pay theseHave
I have the good fortune to know many excellent chefs. They have the ability to take the highest quality ingredients and turn them into memorable dining experiences, but not one can make money out of thin air. It cannot be done. The only way a restaurant can make money is to withdraw customers in exchange for a few drinks, a good meal, and being well groomed. This means that every book an employee receives, regardless of the label, comes from customers. Salaries, wages, tips, service charges – all come from customers. Clients absolutely pay salaries – last year has shown us, at the very least, that without clients we have to rely on the government to pay our staff. So isn’t there a responsibility to ensure that the way companies pay their staff doesn’t cost customers more than they need?

Every country in the world has a different culture and philosophy when it comes to tipping. No one is completely right or completely wrong. The current service fee system isn’t perfect, but it was introduced for good reason and overall it works. Giving it up comes at a significant cost, and someone has to pay it. Fair play if you intend to bear this cost on your bottom line, but if you expect your staff or customers to foot the bill, are you sure they are willing or able to do so?

To those who advocate change, I say this: be careful what you want. If the current business model comes to an end and the long-standing financial benefits disappear, they will never return. £ 1.1bn is a lot of extra food and drink to sell each year.

rockDavies runs the trunkWMT Troncmaster Services team. Do you agree with Peter or are you considering removing the service charge in your restaurant? Contact us at James.McAllister@wrbm.comHave