The implications of the National Living Wage, which came into effect on 1 April, are still to be played out in the hospitality industry. Without a doubt this will have an impact on operating costs, and profits of restaurants, hotels, pubs and bars.

Already one response has been to increase costs to the consumer. Samuel Smiths has added between 10 and 12p to a pint, for example.

Another approach is adjusting staff benefits; it is reported Caffe Nero are removing staffs’ right to a free lunch to reduce costs, while fresh food to go retailer, Eat, has stopped paying staff £3.60 for their 30 minute lunch break – although the retailer makes it clear that 95% of their employees now receive more than the £7.20 per hour NLW.

Zizzi has also been accused by the Guardian of reducing staff perks. Their system of free food allowances for anyone working over six hours has also changed, to a cut-price menu for all workers. This is deemed a fairer policy with subsidised staff food regardless of the length of shift.

Maybe more significantly, the amount waiting staff at Zizzi can earn from gratuities has been cut, with tips left on credit cards or through the 12.5% service charge now shared equally with kitchen staff. Previously the split was 70/30 in favour of the front-of-house workers. Zizzi contends that 100% of tips go to staff and that they have exceeded government requirements on pay by awarding additional rises to many who already earned more than the living wage. Again, this was seen by the operator to be a fairer way of distributing tips, with cash tips still going direct to waiters.

However, the distribution of tips has been a hot topic in the last year, with the Business Secretary launching an investigation into abuse of tipping last summer and union, Unite, expressing concern about changes to tips in relation to the introduction of higher wages for staff.

Whatever the approach to managing the impact of the NLW, operators must ensure that they are not relying on tips to make up wages to the new minimum. To understand the implications around distribution and taxation of tips, see our article: Tips – a fair distribution.

The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.