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Tipping and etiquette: Is service charge any different from tip?

What is a service charge? Is it different from a tip to the wait staff? And does either make sense?

brunch Updated: Sep 27, 2015 11:17 IST
Vir Sanghvi
Vir Sanghvi
Hindustan Times
service charge,service tax,restaurant
Blanket price: In an ideal world, of course, restaurants would be like shops, hospitals or airlines (nobody tips a stewardess, no matter how good the service has been) and would charge us all a fixed rate.((Photo: iStock))

In July this year, a Bombay lawyer registered a case at a police station suggesting that some criminal (or at least, improper) activity had occurred at a restaurant because the bill included something called a ‘Service Charge’. Because most of us are used to the concept of service tax, the cops first wondered if there was a taxation angle.

The restaurant owner clarified that this was not a tax but a charge for service, that was distributed to his staff. Somewhat bizarrely he also claimed that there was no obligation to state the way the charge was calculated (ie: was it a particular percentage of the total, etc.) on the bill.

I don’t know what will happen to the police complaint but the incident has been enough to ignite a campaign against service charges in print and on TV channels.

Frankly, I’m a little confused by the fuss. A service charge is an international concept. In some countries – the US, for instance – there is no service charge and you are expected to leave a generous tip when you pay your bill. In some countries (France, for instance), there is no need to tip because a service charge, equal to what your tip should be, is added to the bill.

If you feel that service has been particularly bad, you can ask for the service charge to be deducted from your bill. If you have paid a service charge, then you should only tip if you think the service has been so outstanding that you wish to reward your service.

Why does a service charge make sense? It doesn’t really, unless you believe that tipping makes sense. If you buy, say, a pound of sugar and two pounds of flour at a supermarket, you are not expected to tip the cashier. So why then should you tip when you buy a product made from flour and sugar (a cake, for example) at a restaurant? And why should you tip the person who brings the cake from the kitchen to your table and not the cook who actually baked it?

There are no good answers to these questions and tipping only makes a little sense when you think back to the era when people in the West had servants. In England, as far back as the Tudor era, it was customary to leave a tip for the servants when you went to stay at a friend’s house. (In India, where we still have help, that practice endures.)

Over time, people began to leave tips for the staff in boarding houses or taverns where they stayed and soon, tipping became the norm in the hospitality industry.

But why should people who work in the hospitality industry get tips, when those who work in other sectors do not? A nurse, for instance, performs a much more valuable function than a waiter. And yet, nobody tips her, no matter how good she is at her job. Which is why nurses earn much less than waiters at successful restaurants who make vast amounts of cash in tips every month.

My theory is that the owners of restaurants encouraged the practice of tipping because it got them off the hook. Now, when a waiter’s salary is calculated, it is taken for granted that he or she will earn a certain amount in tips, so the restaurant owners lower the salary to take that into account.

As a practice, I reckon it is unhealthy and unnecessary. But sadly, that’s the way it works all over the world. In India, in the old days, waiters at restaurants in Park Street in Calcutta, Churchgate Street in Bombay and Connaught Place in Delhi were paid a pittance. They were expected to earn most of their income from tips.

In New York, the same sort of practice endures. Serving staff at many establishments are paid not much more than the minimum wage. The bulk of their income must come from tips. Diners are made aware of this and there is always enormous pressure to leave large tips. (Over 18 per cent of the bill is not uncommon in New York.)

And because the quantum of tips is decided by factors other than quality of service, waiting tables becomes a favourite job for out-of-work actors. Research shows that good-looking younger people often get higher tips than those who actually excel at service. In many restaurants in America, you will notice that as the meal nears its end, the waitress suddenly becomes more attentive, makes eye-contact and is a little more touchy-feely. All this has damn-all to do with service but is a way of setting you up for a large tip.

Blanket price: In an ideal world, of course, restaurants would be like shops, hospitals or airlines (nobody tips a stewardess, no matter how good the service has been) and would charge us all a fixed rate. ((Photo: iStock))

If, however, you do not tip enough or – God forbid! – do not tip at all, expect a rude response. On one occasion, at a perfectly ordinary Chinese restaurant in New York, I got a phone call that went on and on near the end of my meal. After I had paid my bill. I went out to continue the call, intending to return, collect the rest of my things and leave a tip. But within seconds, the waitress had chased me out onto the street. “You forget my tip? Where’s my tip?” she shouted loudly, presumably to embarrass me. My answer that I was intending to return to the table and would have left a tip, cut no ice. Shamed by her shouting and feeling like a cheapskate, I left twice the tip I would normally have.

Such incidents are not uncommon in New York or indeed, in other American cities. Service staff take the line that unless you have left a large tip you haven’t really paid for your meal.

Which is why I prefer the French system – the service charge that is so controversial in India these days. A service charge relieves you of the obligation of calculating the exact percentage of the bill that you need to leave as a tip. Normally, servers do not expect you to leave anything extra for them once you have paid a service charge.

Of course, if the service has been exceptional, nothing stops you from leaving something extra. If you leave an additional five per cent, the server will be delighted. If you leave 10 per cent, he will be overjoyed. And if you leave 15 per cent, it will confirm his original notion that you are a foolish foreign tourist who knows nothing about dining in restaurants.

Waiters tend not to like service charges in those countries (India, for instance) where some places let you leave tips and others levy a service charge. A service charge is distributed throughout the restaurant, so that those at the back of the house also get a share. And because it is usually paid by cheque, they have to pay tax on it. A tip, on other hand, is theirs to keep. If it’s in cash, they won’t even have to declare it to the tax man.

At the Oberoi group, where a service charge is now the norm, many old staff members left when it became clear that they would now have to share their tips.

At ITC, where servers get tips, the best waiters and captains can make so much money that not only do they always earn more than their bosses, the restaurant managers, but many have even refused to be promoted to a managerial grade because then they would lose their tips.

One problem with a service charge is that unscrupulous restaurants don’t always pass all of the money on to their staff – and some don’t pass it on at all. Only the cashier knows how much money has come in as service charge, so it is easy to hoodwink the staff. And at some places, even if you add a tip on your credit card slip, they may not pass it on the staff. So now, I always ask a server: “Will this money get to you?” before I put a tip on my card. A surprisingly large number say no, and so I end up paying them in cash.

So, a few final rules: A service charge has nothing to do with service tax. If a restaurant puts a service charge on the bill, it is obliged to tell you what percentage it is. If the service is bad, ask that the service charge be removed.

That said, I prefer the idea of a fixed service charge to the trauma of calculating a tip and trying to work out whether I should pay the waiter more because his unscrupulous employer does not pay him a living wage.

In an ideal world, of course, restaurants would be like shops, hospital or airlines (nobody tips a stewardess no matter how good the service has been) and would charge us all a fixed rate. Serving staff would be paid properly by their employers.

But we don’t live in an ideal world, alas. So here’s my formula for tipping in India: for okay service, 12 per cent is great. For good service, 15 per cent. For exceptional service, 18 per cent to 20 per cent.

You can pay more if you like. But you’ll just look like the kind of rich vulgarian who expects lots of bowing and scraping from the staff, the next time he visits.

From HT Brunch, September 27Follow us on with us on

First Published: Sep 26, 2015 15:01 IST