This is a useful example of how people will always, but always, play the game. Doesn’t matter what the rules are they will be played.
Pizza Express is facing a backlash from waiting staff after their slice of tips was cut in order to pay kitchen workers more.
The Unite union said workers would lose an average of £2,000 a year after their share of tips paid via credit and debit cards or the company’s app was suddenly reduced from 70% to 50% when Pizza Express restaurants reopened this month.
Doesn’t sound very fair.
Employees set to lose on average £2,000 a year after money left by customers is diverted to increase the pay of kitchen workers
Well, maybe the chefs should get a cut of the tips. That’s not actually the point though:
Card tips at Pizza Express are managed via a “tronc” in which a committee of staff members decide on how they are allocated. Workers said the members of the committee, led by a member of Pizza Express’s head office team, had not been elected by staff and minutes of meetings were not available.
Pizza Express said the decisions of the tronc committee were “entirely employee-led”. It said kitchen staff had also been awarded a pay rise by the company and this would take effect in July.
There’s a tax wedge issue here.
A tip is a specific legal form of payment. It is subject to income tax and income tax only.
A service charge is another form of legal payment. It is subject to VAT, national insurance – both parts – and income tax.
That distinction isn’t, not really, a legislative one, it stems from common law. A voluntary amount offered to someone is one thing, a charge for something is another.
This leads to a certain difficulty in defining what is a tip and what is a service charge. The HMRC definition runs along the lines of how that “tronc” system works. If the money goes into a pot which is then shared between the staff then that’s just fine, that pays the income tax and not the NI nor VAT. If it goes into some pot controlled by the management then that’s actually a service charge and so pays all three taxes.
Whether that’s the right place for the line that is where it is.
decisions of the tronc committee were “entirely employee-led”.
That’s the crucial part here.
Staff led – entirely and wholly – and tax is 20%. Management decide, even in part, then it’s VAT plus 2xNI plus income tax – 20%, 25% and 20%, not quite 65% in total given the calculation method. You can see this is a fairly important point?
So, the wait staff agree to lower their share of the tips, do they? Without considerable “guidance” from management, do they? Oh yes, we all believe that. No, really.
But management claim that they did, so as to not lose all that money in the system in tax. Uhn hunh, right.
Any and every system is going to get gamed, isn’t it? Which is an interesting lesson for any of those out there with complex plans for the economy. Those gang aft agley simply because folks make them do so.