Campaign for service charges to be shared fairly reaches a tipping point

In an ideal world there would be no tipping. In the United States hefty tips subsidise poorly paid servers. In Ireland a minimum wage exists for hospitality workers but not yet a living wage for staff who often work erratic shifts and antisocial hours in difficult conditions. Tips are supposed to bridge the gap.

Many employers distribute tips and service charges fairly. But as Tánaiste and Minister for Enterprise, Trade and Employment Leo Varadkar has acknowledged, there is “anecdotal evidence that a minority of employers, particularly in the restaurant and hospitality sectors, use tips or gratuities – given by customers and intended for staff – as a means of meeting their payroll obligations and other overheads”.

Until now there was no law obliging employers to pass on tips, so customers didn’t know if a tip or service charge went to workers or to pay wages or other business costs.

Public awareness of tips and service charges has been growing in recent years due to campaigns from grass roots organisations such as One Galway and One Cork. Whistleblowers emerged, leading to a growing awareness that tips don’t always go to staff. Among unions, Unite took a strong stand on the issue.

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There was political support, particularly from TD Joan Collins, who championed Ivy staff protesting over alleged unfair treatment, and Sinn Féin senator Paul Gavan, whose initial Bill in 2017 had widespread support but fell victim to party politicking. Dr Deirdre Curran of the University of Galway’s business school contributed to the debate with research on working conditions in Irish hospitality.

Julia Marciniak, one of the original Ivy whistleblowers and now hospitality and tourism co-ordinator at Unite the Union, is pleased. “The legislation is not perfect but it’s massive progress for workers. This is the first time they have a legal right to their tips,” she said.

In recent years, workers have called out restaurants’ tipping policies and The Irish Times has also reported about staff at a Dublin city restaurant where the owner took €2 per diner from tips; a high-end suburban eatery where the owner and managers pocketed 50 per cent of tips; and a west of Ireland hotel where staff who left before year-end lost an entire year of tips.

[ Before you leave a tip in an Irish restaurant, read this ]

The first tranche of Dr Curran’s research on working conditions, Inside Out Hospitality: A Study of Working Conditions in the Hospitality Sector in Ireland, published last year, uncovered breaches of basic employment rights and included testimonies of abuse, harassment and bullying. Almost all respondents mentioned tips, with some saying the system wasn’t fair.

[ Hospitality staff: ‘Everywhere I have seen harassment... it’s all swept under the carpet’ ]

Her report signalled how conditions could be improved and was used to inform the Joint Committee’s report on Working Conditions and Staff Shortages.

Hidden Truths: The Reality of Work in Ireland’s Hospitality and Tourism Sector, a survey by Unite, of 291 hotel, bar and restaurant staff in June 2021, offered a snapshot of poor working conditions. Among the respondents, 50 per cent didn’t get their tips.

Paul Gavan’s Protection of Employee Tips Bill garnered widespread political support from all parties except Fine Gael. Minister for Social Protection Regina Doherty opposed it and proposed an alternative Bill making it illegal for employers to use tips for wages. While a Low Pay Commission report said legislation was not needed as it could increase administration costs and be unenforceable, others disagreed.

The legislation was revived post-Covid under Mr Varadkar and the Payment of Wages (Amendment) (Tips and Gratuities) Bill. It gave staff a legal entitlement to card tips, with an explanatory statement, and made withholding card tips, or using them to pay wages, illegal.

There was a glaring omission, though. The proposed law explicitly maintained the status quo on mandatory service charges, deeming them business income. It was “a big concession to employer representatives”, said Curran.

[ When is a restaurant tip not a tip? When it’s a service charge ]

Most diners assume a “service charge” is a tip by another name, but legally a hotel or restaurant was fully entitled to keep them. Far from a bonus to staff, it could legitimately be used to pay – often minimum – wages, or any other bills.

The Tánaiste took on board objections and in June 2022 brought forward an amendment, effectively banning so-called service charges unless they went to staff.

How will the new rules be applied? At the Ivy on Dublin’s Dawson Street, long a focus of criticism for its tips and service charge policies, a spokeswoman confirmed that as of Thursday 1st, “in line with the new legislation, the Ivy Dawson Street is removing the discretionary service charge applied to bills. This will be communicated to guests via the Ivy website, menus and bills. There will also be a notice outside the restaurant.”

From Thursday diners everywhere should be able to see how tips and service charges are distributed, although it’s unclear how specific restaurants will be about whether tip-splits include kitchen staff or management.

Adrian Cummins, chief executive of the Restaurant Association of Ireland, said some managers had concerns about “unintended consequences”, fearing additional taxation on workers because “now everything has to go through payroll and has to be taxed. Heretofore people went about their business and Revenue didn’t take any interest in it.”

There may be PRSI implications too when card tips go through payroll. He’d like to see something similar to France, where hospitality tips are not taxed.

Marciniack is “very proud that from the Ivy experience I was able to play a role in this and help the Government and Minister Varadkar see sense and do the right thing. It shows that workers can have the power to fight for their rights, and with support from unions, politicians and the public, things can change. I hope this will put more money in the pockets of lower-paid workers, especially facing January, with fewer hours and fewer tips.”