Finance Bill

Written evidence submitted by Unite (FB25)

S ubmission to the Public Bill Committee on the Finance Bill

1. Introduction

1.1 This response is submitted by Unite the Union, the UK’s largest trade union with 1.42 million members across the private and public sectors. The union’s members work in a range of industries including transport, manufacturing, financial services, print, media, construction , energy generation, chemicals , local government, education, health and not for profit sectors.

1.2 In the Service sector Unite represents thousands of members in hotel s , hospitality, casino s, security, cleaning , maintenance, non-food retail and care home s . M any of these workers are subjected to low pay, poor conditions and zero hour contracts.

1. 3 Unite has obtained the views of our members through our lay member committees at national and regional level. Therefore Unite is in a unique position to submit a response to the Public Bill Committee on the Finance Bill.

2 . Disguised Remuneration a nd Tronc Schemes in Hospitality

2.1 Since 2009 Unite the Union has been actively campaign ing for fairness and transparency in the allocation of staff tips, gratuities and service charge within the hospitality sector .

2.2 Our activities have highlighted many sharp practices and abuses and brought about a change in the Minimum Wage Law preventing employers from counting tips toward the minimum wage as well as encouraging employers to drop practices such as charging an admin fee for processing tips via the payroll and making deductions from tips for breakages and walkouts .

2.3 Unite is still awaiting the outcome and recommendations arising from the enquiry and consultation ordered into ‘ Tips, gratuities, cover and service charges: proposals for further action by former Business Secretary Sajid Javid, which is now 18 months overdue. The consultation was originally launched in May 2016 and has still yet to be published, despite parliament ary questions asking about this. The government appear to have forgotten about t his issue and those affected.

2.4 Unite has recently entered into an agreement with the Association of Licensed Multiple Retailers (ALMR) on a joint code of practice for the fair and transparent operation of t ronc schemes . Please see the following l ink for further information -

2.5 HMRC Guidance E24 (2015) set s down the provision that where a tronc is run by staff and is genuinely independent from employer influence , then neither the employee or the employer , is obliged to pay national i nsurance on tips, gratuities or service charge even when these are processed via the payroll .

2.6 Unite is concerned, there is growing evidence that some employers are using the provisions of the E24 guidelines and setting up tronc schemes to cut the basic pay of all staff to the bare legal minimum and then topping up wages from the service charge, with the result that senior members of staff, and the companies concerned are avoiding NI on the bulk of their earnings. Unite believes this undermines the spirit and intent of the E24 guidelines, as such schemes cannot in any way be considered in the control of staff or genuinely independent from employer influence.

2.7 Matthew Brown, technical officer for the employment taxes subcommittee at the Chartered Institute of Taxation, said payments via a tronc system operated completely separately from the employer were not liable for national insurance. But, as service charges are usually set and controlled by the employer it might be difficult for them to prove they had no involvement in the scheme’s operation. [1]

He added that by reducing the amount of basic pay, any employers involved in such a scheme would also be reducing the potential liabilities for pension payments under auto-enrolment, which are based on basic pay and would not include tips.

2.8 It has been clear to Unite for some time that a number of hotels and restaurants use a high proportion of service charge payments to top up the salaries of senior managers. Currently in law the service charge belongs to the employer , so technically they have a right to use service charge as they deem fit. However, we are clear that this combined with the provisions of E24 essentially allows employers to declare substantially lower hourly rates of pay for managers in order to avoid NI via the tronc s ystem. In one case Unite identified that one large hotel was setting aside 20 per cent of service ch arge income to be shared among the senior management team. Further investigation showed that the hourly rate of pay being declared was the National Minimum Rate, placing them on the same weekly rate as the waiters and waitresses they were responsible for.

2.9 What Unite believ es we are witnessing since the i ntroduction of the National Living Wage (NLW) is a rapidly growing trend to manipulate the provisions of the E24 guidance in order to create concealed remuneration schemes , which place all staff regardless of role or status onto the NLW r ate of £7.50. This undermines the efforts we are making with organisation s such as the ALMR to create fairness and transparency, breaches the E24 Guidelines and devalues the in tent of the NLW to l ift workers out of poverty.

2.10 This trend appears to be led by third party accountancy firm s being contracted by the employer to run their t ronc schemes. In particular WMT Troncmaster Service Ltd, who clai m to run 250 t ronc schemes.

2.11 Unite has dealt with two specific complaints concerni ng these schemes and we suspect the same concerns would arise if the other schemes were to be investigated.

2.12 In employer A - The scheme was introduced into the larger of two workplaces. Staff were told that a tronc scheme was being introduced and run by WMT Troncmaster Services Ltd. In order to be entitled to a fixed income share of the service charge as part of this arrangement all staff , regardless of hourly rates , were require d to sign an agreement stating that they agreed to their hourl y rate being cut to £7.20 – the NLW rate at the time . The scheme was sold on the basis that they would have an additional guaranteed income that would not be subject to n ational i nsurance deductions. The schemes were introduced into the workplace based on most staff being enticed into signing the pay cut proposal.

2.13 No guidance was provided by the employer of the impact of doing this on statutory rights, such as redu ndancy, notice, maternity , pay e t c. These would now be based on the new lower hourly rate. The arrangement made clear that the service charge element was non-contractual.

2.14 In the second smaller workplace staff objected and refused to sign. The supervisor , who was on a rate of over £9 an hour , objected and the staff who were on around £8 an hour also objected. The arrangement would have placed everyone on £7.20 an hour regardless of position. The arrangement was clearly to the benefit of the company because some months later they came back with a second proposal which would have increased the fixed share of service charge in exchange for the acceptance of the pay cut. Again staff refused, preferring to keep their hourly rate and the statutory protections which flow from this .

2.15 Staff also objected to key clauses laid down in the tronc rules drawn up by WMT which called into question the independence of any decisions regarding tronc allocation.

E . g . ‘The tronc master will work with, take advice from, managers and other senior personnel in order to help him make allocations of tronc funds.

‘The tronc master may take advice from managers, supervisors and other personnel when deciding the level of distribution.’

There was no provision in the rules for any engagement with staff and therefore in their view this was not a genuinely independent tronc in line with HMRC E24 guidelines.

2.16 The second example was in another company where WMT operated the t ronc. The senior sous c hef complained that his rate of pay was the NLW the same as the junior chefs and kitchen porters he was line manager to. He received a fixed monthly amount from service charge , which was higher than the more junior staff. When the NLW increased from £7.20 to £7.50 in April 2017 his fixed service charge amount went down substantially without any explanation. This had happened to other staff.

2.17 This was raised with the employer and the tronc master. The employer denied all knowledge of the change. However, the tronc master’s response revealed the truth. They said that in conjunction with the employer they had looked at staff earnings.

"We were advised that your house pay was increasing so after consideration the troncmaster decided to reduce your tronc. However, your overall target earnings have been increased by £450 per annum from April 2017 . "

The only increase staff had received was the uplift to then new Living Wage rate of £7.50 an hour as required by law. The value of the £450 increase in target earnings was far less than it would have been had the troncmaster not interfered with the value in collusion with the employer

2.18 Staff complained about the lack of consultation or notice of the change and WMT back ed down and restored the original value of the tronc. This was clearly endorsed by the company as it require d a larger monthly amount being allocated back to the tronc from the service charge. Staff have expressed concerns that there is nothing to prevent this happening again when the NLW increases next April particularly as the tronc rule contain s the same clauses as those outlined above as well as a clause clearly linking salary to tronc share , which talk about the tronc master being able to increase the share if staff are promoted.

2.19 In another example when a senior sous chef applied for his position it was advertised at a salary of £28,000 pa. He accepted the position on this basis. When he received his contract it stated he was to be on an annual salary of £16,000. When he queried this he was told not to worry, the remaining £12,000 would be guaranteed as fixed income generated from service charge via the tronc. He was told this was to his benefit because he would pay no NI on the £12,000 service charge of his salary. The staff he is in charge of are recruited on the basis of £8.50 an hour. But are then told that only £7.50 is declared for NI, with the remaining £1 coming from their fixed share of serv ice charge via the tronc.

2.20 Unite believes that there is clearly a business model being adopted here to mitigate the costs of the NLW by creating what is essentially a concealed salary process designed to avoid national i nsurance rather than the fair and transparent allocatio n of tips and service charge. Unite believe s that migrant and other vulne rable workers are being subjected to exploitation by a scheme , which effectively denies them the full benefits of statutory protection in terms of the calculation of a week’s pay for certain legal rights such as re dundancy, notice, maternity etc.

2.21 Unite therefore b elieves that section 45 of the Finance B ill should make specific reference to tronc schemes specifically set up to place all staff on minimum rates in order to avoid NI contributions on fixed service charge amounts, designating these as concealed salary schemes subject to investigation and enf orcement.

October 2017


Prepared 25th October 2017