Tipping cultures are different across the Channel and the Atlantic. While fifteen per cent is widely regarded as the least you should ever tip in America, tipping in the UK is generally voluntary and not an absolute expectation. Jane Loginova, CEO of Radar Payments explains.
Here, establishments follow a voluntary code for tipping, and there is no legal obligation to pass on all tips from customers to workers.
As far back as 2015, there was a public outcry against some high street restaurants that insisted on keeping as much as 10% of tips paid by customers using debit or credit cards. Their policies included taking a percentage of staff tips before their distribution, forcing staff to pay a percentage of money from tables served and retention by the business of the service charge as a whole.
A few years later, then prime minister Theresa May announced new laws to tackle the issue, but Brexit turmoil stopped the legislation from going ahead. While there have been several pledges over subsequent years, fair tips legislation has so far failed to materialise, despite the fact that 4.49 million people are employed by the UK hospitality and tourism sector (which is one in ten people within the working population).
Recently, Conservative MP Dean Russell brought forward a new Tips Bill to put protections into law, which he hopes will be discussed by the government in September. The Bill would stop employers from keeping tips intended for staff and help them arrange how tips are decided.
Disproportionately affected by lockdowns and government restrictions, the hospitality sector has been hit particularly hard by the coronavirus pandemic. Many venues were forced to stop trading for the majority of 2020, with all restaurants, pubs and bars limited to deliveries and takeaways during the first quarter of 2021.
In April 2021, it was reported that the COVID-19 pandemic wiped £80.8bn off hospitality sales in a single year. While consumer spending on hospitality started to rise in May 2021, it remains at less than 70% of pre-pandemic levels, with a similar situation in turnover, remaining 25% lower than 2019 levels.
Another trend that unfolded over the pandemic is an acceleration of cashless, digital payments. The disappearance of cash was unfolding long beforehand, with millennials leading the way: an Experian report in 2019 showed that 1-in-10 millennials used their digital wallet for every purchase.
This trend sped up due to COVID-19, with everything from QR codes to online ordering to digital check-in going mainstream. As a result, the number of cash transactions fell by more than a third in 2020, with over 13 million people relying exclusively on digital payments – double the number from the previous year.
Millions of workers rely on tips and gratuities to supplement their basic wages – including hairdressers, hotel workers, baristas and taxi drivers. While people have historically been happy to tip in cash, the shift towards digital payments, along with lockdown restrictions and restaurants relying on takeaway and delivery services, results in many customers not knowing how to tip or even whether a tip goes directly to the worker who served them.
While the shift towards digital payments is a positive development for businesses and financial institutions by reducing cash handling costs, the consumer opinion is more divided. Contactless payments are more convenient and minimise physical contact. Yet small businesses who offer to tip via card often leads to these tips being pooled and failing to reach the person they were intended for.
Since one of the greatest challenges in hospitality is retention, it is essential that staff are rewarded for their services. Unpopular tip policies can have a demotivating effect on staff and also create reputational damage for hospitality businesses.
This is where fintech is helping to transform how workers receive gratuity in the digital age.
Contactless digital tipping is rising as a trend, with businesses now able to assign a QR code to an employee badge or table – allowing customers to scan, tap and tip. Faster and safer than cash, the technology often already exists within a phone instead of requiring a new app to download.
The latest technology directs the individual’s tip to the business’s bank account, alongside transaction reporting, and uses the built-in security of Apple Pay and Google Pay to integrate other critical business systems for hospitality (for example, accounting and payroll services).
For businesses that adopt the technology, it would mean that even if a customer does not have cash on them, as long as they have their smartphone, they will be able to tip the hospitality workers they wish to acknowledge and thank for their service. This technology heralds a new potential future of fairer wages for the worker, increased operational efficiency for the business, and a more seamless experience for the customer.