When Service Charge Becomes a Subsidy (And Why Gaucho Got It Wrong)

I really like Gaucho.

Or at least... I did.

Yesterday morning, scrolling through the Sky News app, I came across something unsettling. The headline about Gaucho slashing their waiters' share of service charge.

Here's what happened, and why it matters for anyone running hospitality operations in golf clubs.

The situation

Gaucho's waiters previously received 45% of the 12.5-13% service charge automatically added to bills.

That dropped to 37% last year, and will now fall further to either 29.4% or 25.45% depending on length of service.

For new waiters, it’s just 17%.

Bar staff dropped from 20% to 17%.

The reason?

Service charge will now be shared with "staff located at non-public places of business such as head office and central production units."

Gaucho insists: "The employee costs borne by the Gaucho business remain as before and the business itself does not benefit in any way from the amended tronc system."

They claim it's been "benchmarked independently to ensure industry standards are maintained."

Why this is wrong

Let's be honest about what "benchmarking" really means here.

Someone looked at what front-line workers were earning from service charge, compared it to back-office salaries, and decided the servers were getting "too much."

That's what this is actually about.

Here's my position:

I'm actually against service charge these days. Not because I don't value great service; I absolutely do. But because service charge doesn't incentivise excellence the way genuine tips do.

A properly run tronc system? Brilliant. The NI benefits work for everyone. There are excellent troncmaster services that protect tips from National Insurance for both employee and employer.

But here's the critical bit...

A tronc and service charge are two separate things.

What Gaucho's doing is using guest-paid service charge to subsidise back-office labour costs. The people actually delivering the experience; taking bins out at midnight, handling difficult guests, working split shifts; are taking significant pay cuts so head office staff can receive tips they didn't earn through guest service.

The whole thing just feels really off.

The TIPS principle

TIPS originally stood for: To Insure Professional Service.

It was a direct transaction; deliver exceptional service, earn recognition for it.

That immediate connection between performance and reward drives hospitality excellence.

Service charge breaks that connection. And when you redistribute it to non-service staff, justified by "benchmarking" that essentially says servers earn too much...

You've fundamentally misunderstood what hospitality culture requires.

Having worked West End hospitality for years, I cannot overstate how vital positive tipping culture is for developing truly great service standards. It's about pride in craft, immediate performance feedback, and the ability to build sustainable lives.

When you undermine that culture by deciding front-line workers earn "too much"...

You create resentment and disengagement.

What this means for golf clubs

I've seen exactly this attitude in golf clubs too.

The thinking: "Why should waiters earn that much when our office staff work just as hard?"

It's a false equivalence.

Yes, everyone contributes. But hospitality's economic model has always recognised that front-line service roles carry unique demands and deserve direct reward for performance.

If you operate service charge:

Are you clear where it goes? Does your team see the connection between performance and reward? Are you "benchmarking" in ways that justify paying your best performers less?

If you're considering implementing one:

Please take stock and think about this. Build a culture where members actively want to tip for exceptional service instead; and give them a way to do so.

My recommendation

Remove service charge entirely.

Pay your team properly from the start. Let them earn additional income through tips that directly reflect their skill and effort.

Set up a proper tronc through a reputable troncmaster service to protect those tips from NI contributions.

But understand clearly: a tronc is not service charge.

A tronc manages voluntary tips. Service charge is mandatory; guests have no choice. One rewards exceptional performance. The other has become a way to subsidise labour costs and justify paying front-line workers less through convenient "benchmarking."

I appreciate the financial pressure following last autumn's budget changes. Labour margins are genuinely challenging.

But using service charge to ease that pressure isn't the answer. Using "benchmarking" to justify reducing what your best performers earn definitely isn't the answer.

Build a tipping culture based on genuine performance. Protect those tips through a proper tronc. Pay fair wages as your baseline.

It's more honest, more effective, and builds service culture that transforms hospitality from acceptable to genuinely exceptional.

Because here's the uncomfortable truth...

If you begrudge your front-line team the potential to earn good money through exceptional service, you'll never build an exceptional service culture.

And your members will absolutely notice the difference.

Quick one, if you’ve not done this yet, my scorecard helps you spot gaps across guest experience, costs, and day-to-day ops. Takes a few minutes and you’ll get a feedback report at the end.