Restaurants need to start seeing service charge the same way diners do

One wonders whether Gaucho ever thought its new tronc policy would wash in the court of public opinion. Maybe the steakhouse group, which employs thousands of employees across its 20-strong restaurant estate, assumed the story would pass without comment. And if it did then more fool its senior team.

If you’ve been anywhere on social media this week, you’ll know it has caused quite the ruckus. A post on the UK-based Politics JOE Instagram page attracted more than 500 comments in 24 hours; a story on Reform UK suspending a clutch of councillors the day before attracted less vitriol. The comments included condemnation from people who purported to be both current and former Gaucho employees, along with many members of the public calling for a boycott. I notice Gaucho’s own social media feeds hit with a similar deluge on Monday and Tuesday, before the group’s social media team made the wise decision to turn off comments altogether.

In case you missed it, a news item at the weekend reported Gaucho had introduced a new scheme for dividing service charge between staff following a joint benchmarking exercise it conducted with its independent troncmaster. According to a letter sent to workers seen by The Guardian, waiters now receive between 25.45% and 29.4% of the service charge collected at tables they have served, depending on length of service, under the new policy; down from 37% previously and a reduction from 45% early last year. Bar staff now get 17% of the service charge, down from 20%; putting them level with newly employed waiters, who will also receive just 17%.

The letter, written by WMT Troncmaster, told employees the service charge would now be shared with ‘staff located at non-public places of business’ such as head office and central production units. “This may also include staff working at Gaucho restaurants who are provided by an agency but who are not directly employed,” it read.

“The troncmaster strongly believes that service charges are paid by customers in respect of their whole experience, and that all team members who play a part and impact on that experience should participate in, and receive a share of, the tronc funds.”

Gaucho, which is part of Rare Restaurants and led by former The Ivy Collection and Wolseley Hospitality Group CEO Baton Berisha, hit back following publication of The Guardian’s story, insisting that the changes offer ‘an equitable distribution’ of service payments to employees. A source close to Gaucho told MCA the arrangement provides a ‘fairer’ system for sharing tronc to staff who deliver the customer experience in restaurants, with roles such as kitchen staff, sous chefs, commis chefs, receptionists, kitchen assistants, and other levels benefiting from an increase in payments.

I’ve spoken to several people since both inside and outside the sector, and the reaction was broadly similar: feelings of frustration, outrage, a sense of a restaurant business once again trying somehow to game the system of distributing tips in its favour. 

We’ve been here before, of course; perhaps we never left. Various casual dining chains including PizzaExpress, Belgo, Prezzo and Strada faced criticism in 2015 for deducting 8-10% administration fees from staff tips. Côte came under fire for retaining the entire 12.5% service charge added to customer bills instead of passing it on to the staff. Las Iguanas and Turtle Bay were slammed for a policy that required front-of-house staff to pay the company 3%-5.5% of table sales, with staff having to cover the shortfall out of their own pockets. TGI Fridays staff went on strike in 2018 in the UK’s first dispute over tipping policies. While M&B’s Miller & Carter was criticized in 2023 for a “deeply unfair” tipping policy that required waiters to tip out up to 2% of gross sales to kitchen staff, meaning they had pay from their own pocket to make the difference if tips were insufficient.

The various controversies led to a government consultation, which found that restaurant customers were overwhelmingly in favour of the tips they paid going to the people who served them. As the social media reaction clearly shows, that sentiment from diners hasn’t changed. In September last year, a survey of 2,000 consumers carried out by RSM UK found that 80% of consumers think that 100% of tips and service charges should go to staff.

Last year saw the introduction of the Employment (Allocation of Tips) Act, a piece of legislation some three years in the making that made it unlawful for businesses to hold back service charges from their employees, ensuring staff receive all of the tips they have earned. Looking into the detail, the Act requires that tips are allocated “in a fair and transparent manner” between workers who “provided customer service.” The code of practice further states: “Employers should ensure they give due consideration to all of the workers involved in providing service to customers”.

I’ve written previously about my support for the Act. For the best part of a decade, I worked for a restaurant group that used to pocket a certain percentage of all gratuities left to staff via card payments, at one point taking up to a 15% cut of staff tips. In my eyes, the Tips Act righted one of the restaurant sector’s greatest wrongs, and yet still there were some businesses trying to circumnavigate the new legislation.

London-based dim sum chain Ping Pong faced scorn in April last year when it scrapped service charge and replaced it with a discretionary 15% ‘brand charge’ to fund wage rises for all of its restaurant teams. The group said ditching tronc was in reaction to tipping legislation and claimed teams would benefit from increased company wages’. Tellingly though, Ping Pong quickly rowed back on its brand charge. Whether the controversy was a nail in the coffin is unclear, but Ping Pong ceased trading in April this year after collapsing into administration.

All of which leaves me wondering whether we may see a volte-face from Gaucho. The group insists the initial story is wrong. Notably, it objects to the suggestion that service charge will now be used to bump up the pay package of head office workers, saying tronc only goes to staff who are contributing to the dining experience. This explanation is left very much open to interpretation though, and one could argue head office does contributes to the in-restaurant experience, whether directly or indirectly. Nor would anyone disagree with the idea that kitchen staff and hard-working chefs don’t deserve their fair share.

Where it starts to get murky is when the pot gets divided with other roles such as sales, marketing and menu development. Can the company not reward these roles fairly, without diluting what most customers assume is going into the pockets of front-line staff? With its revised tronc policy, Rare appears to be pushing the boundaries of what could reasonably be described as “customer service”.

The financial context hardly supports the business’ case, with Rare Restaurants reporting a loss for the year of £13.3m in 2024, following a loss of £7.3m in 2023. In its recent accounts, Gaucho said premium restaurants continue to face a challenging market, with consumer spending flat and labour costs rising.

Whichever way you argue it, cutting service payments for service staff, especially those likely to be paid the least, is never a good look. It’s a piece of negative press that cuts through to the wider public, and that people don’t easily forgive or forget. It could well deter would-be customers from visiting, and ongoing customers from tipping, if they suspect the service charge is not being divvied up in a transparent way. Diners want to know that the service charge they leave will go to the staff that serve them. And if they believe it isn’t, they’ll think on their feet and vote with their wallets. It’s time restaurants recognise that.