The private-equity-owned restaurant chain Zizzi has become the latest business to respond to the higher minimum wage by cutting staff perks and benefits. The share of the service charge and credit card tips that waiters keep has been reduced, while free food for staff has been restricted to a Margherita pizza or a plate of spaghetti. The Italian food chain, which is owned by Bridgepoint, joins Tesco, Caffè Nero, and many others in chipping away at staff benefits after the government increased the minimum wage for workers aged 25 and over to £7.20 an hour. Zizzi told employees on April 1st, 2016 it would introduce a discounted menu for all staff but pared back the free food menu for those working six or more hours. ‘The range of dishes available for the free staff food will be reduced to either a Margherita pizza or a spaghetti Pomodoro,’ it wrote in a note to staff, which the Financial Times has seen. 

The company also told waiters they would now only keep 50 percent of the credit card tips and service charge, with the remainder to be shared out among supervisors and kitchen staff. The split was previously 70:30. A Zizzi spokesman confirmed the changes were part of a ‘comprehensive review’ of pay and benefits triggered by the introduction of the living wage. He said the food policy would save a small amount of money but would also be more equitable, while the redistribution of tips was fairer to kitchen staff. In the wake of the minimum wage rising, Tesco reduced its Sunday pay for store workers from double pay to time-and-a-half; home furnishings retailer Dunelm scrapped double pay on bank holidays, and Caffè Nero recently stopped giving employees a free panini during shifts. B&Q has also reformed its pay and rewards scheme, lifting basic pay to above the minimum wage for all workers at the expense of extra pay on Sundays and bank holidays. An online petition against the decision attracted over 140,000 signatures; B&Q has since offered staff compensation ‘so that no one will lose out for the next two years. The government, which has trumpeted the rise in the minimum wage with the slogan ‘Britain deserves a pay rise’, is dismayed by the way some employers have responded. Last week, George Osborne complained that ‘it’s not the spirit of the law. Companies should be much more careful about their reputation.’ The phenomenon is widespread, according to Simon Rice-Birchall, an employment lawyer at Eversheds. 

‘There are a lot of employers who’ve made changes but haven’t been named and shamed, he said. ‘I’ve seen bonuses looked at, shift premiums, overtime, whether or not you get double on a Sunday, whether or not you get time-and-a-half on a Saturday – all things being chipped away at with a view to finding money. While it is hard to pin down how many employers have done this, a recent survey from XpertHR suggests that a significant minority of employers have pursued a ‘zero-cost approach’ by either cutting bonuses or discretionary payments (15 percent) or the amount spent on staff benefits (11 percent). However, the Low Pay Commission, the expert body that oversees the minimum wage, warned employers that they would not be able to rely on cost-cutting measures alone to cope with the change. The minimum wage is to keep rising every year until it reaches £9 an hour by 2020 for those aged 25 or over. Squeezing staff costs was ‘unlikely to be enough: it [is] clear that for some, the path to 2020 will require business models to change significantly.

Analysts also warned that aggravating staff with bonus pay cuts was unlikely to yield long-term results. ‘More than ever, staff need to be “on message”, enthused and adding value, said Jonathan Pritchard, an analyst at Peel Hunt. ‘If they are coming to work irritated by something in their remuneration package then they are doubtless going to be less inclined to help the shopper than a sensibly rewarded and valued member of staff. Clive Schlee, chief executive of sandwich chain Pret a Manger, recently told the FT that ‘under no circumstances would he cut bonus pay for staff. ‘I’m very conscious about how hard our staff work – how cheerful they are and how motivated they are when buttering the bread. All that is very important and you simply can’t afford to alienate your staff, he said. Mr. Osborne hopes the policy will break Britain out of its ‘low pay, low productivity trap’ by compelling employers to boost investment and training so their employees are ‘worth’ the higher wage. However, some economists fear companies will simply raise prices or make do with fewer workers.

At Zizzi, staff was told the policy was intended to ‘create a stronger collaborative team’. However, one worker said they should have increased the wages of kitchen staff instead of taking tips away from waiters. ‘What annoyed me is that instead of improving the condition of the kitchen staff, they’re trying to scrape money from other places. Zizzi’s spokesman said the tips decision was made by a committee of staff members and was not done with the purpose of maintaining pay differentials between waiters and other workers. However, Dave Turnbull, national officer at the Unite union, said it was ‘stretching credibility beyond belief to imply that it is purely coincidental that an additional 20 percent of waiters’ tips was voluntarily redirected to the kitchen by an independent staff decision at precisely the same time as the company had to comply with the new statutory hourly rate of £7.20’. ‘This is clearly the same old pattern of a major high street restaurant chain failing to pay its staff a wage they can actually live on and taking it for granted that their customers will mitigate the impact of low wages through leaving tips’, he said.

Questions

1 The case study above suggests that the introduction of the National Living Wage in April 2016 has prompted some organizations to trim staff benefits and alter terms of employment in relation to overtime and weekend and bank holiday rates in an effort to cushion the impact of a higher wage bill on profitability. Is this an understandable and reasonable approach? Critically assess the short-term and longer-term implications of this course of action for the organizations concerned.

2 As Case Study notes, the government has trumpeted the rise in the minimum wage since April 2016 with the slogan ‘Britain deserves a pay rise. From your knowledge of the legislative reform in this area and the wider social and economic policy pursued by the government, is a pay rise in real terms a genuine lived experience for most low-paid workers?

3 How far do you agree with the sentiments of Paul Schlee from Pret a Manger that there is a direct link between pay and staff motivation and cheerfulness at work?

4 Despite protestations to the contrary, do you think that in altering the way in which tips are distributed between waiting staff and kitchen staff Zizzi is aiming to maintain pay differentials between the two staff groups? How important are pay differentials? What are the possible consequences for firms when differentials are narrowed?

Answer rating: 100% (QA)

Questions 1 ANSWER The National Living Wage was introduced in April 2016 and it has prompted some organizations to trim staff benefits and alter terms of employment in relation to overtime and weekend ... View the full answer