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Scrap service charge before we reach the ‘tipping’ point

There is considerable consumer resentment and anger over the 'service charge' being imposed by many restaurants across the country, Pushpa Girimaji writes.

business Updated: Sep 08, 2012 23:23 IST

There is considerable consumer resentment and anger over the 'service charge' being imposed by many restaurants across the country. From the large number of letters that I have received on the issue, I see a slow build up of consumer resistance to the levy and if the hospitality sector fails to respond positively to this consumer sentiment then we may soon reach the 'tipping' point.

Initially, when restaurants started inflicting a 'service charge' of 10 per cent on the bill, many mistook it for the service tax levied by the government. However, as the 'extras' on the bill started jacking up the cost of eating out by as much as 30-40%, consumers started scrutinising the bill more carefully. They soon realised that on the total food bill, they were being charged an additional 'service charge' and worse, they were paying VAT (value added tax) and service tax on this service charge too!

Considering the fact that the food bill incorporates all costs, overheads, including the profit margin, the service charge is totally arbitrary and unwarranted, say consumers.

The restaurateurs say that the service charge is in lieu of the tip that customers give. Since that money goes only to the wait-staff and the non-wait staff gets nothing, they have devised the method of distributing this money among the entire staff.

But surely, restaurants cannot turn a gratuity into a compulsory levy. A 'tip' is basically a token of appreciation for the service rendered, the percentage depending on the quality of service. The service charge on the other hand, takes away this choice from consumers and forces them to pay a pre-determined percentage fixed by the restaurant, irrespective of whether the service is good, bad or indifferent.

Besides, what is the guarantee that the service charge (or even the tip paid through credit card charge slip) is actually going to the staff and is not pocketed by the owner or is being used to pay the salaries of the employees?

In the United Kingdom, for example, it was found that many restaurants were using 'discretionary' service charges, cover charges and even tips paid through credit cards, to pay the salaries of workers! In one restaurant chain, for example, the wait staff was threatened with sack orders for not generating enough credit card tips, as that went to the coffers of the owner, while cash tips went to the staff.

The misuse of such gratuities meant for the staff by restaurant owners has indeed become a highly contentious issue there. So much so that in October 2009, the UK government plugged a loophole in the National Minimum Wage legislation to stop businesses from using this money to make up the minimum wage payable to the employees.

But a year hence, the trade union—Unite— complained that this might have stopped employers from using service charges to top up salaries, but there was still no legislation to prevent employers from pocketing service charges and other such gratuities collected from customers which is frequently happening.

So there's every reason for consumers to demand scrapping of 'service charge' by restaurants and patronise those that do not impose it.

Aveek Jena: Almost all restaurants in Delhi NCR charge a flat 10% service charge on the bill. Can I choose not to pay this charge?

If there is no mention of the service charge or its percentage on the menu card, (or you are not informed of it in advance) then you can refuse to pay. Even otherwise, if you are unhappy with the service, you can protest and say that you will not pay the service charge. You can also express in writing, your displeasure over the levy.

First Published: Sep 08, 2012 23:14 IST