Somehow the issue of service charges at restaurants never goes away. It’s back in the news again after a Delhi hotel was fined for levying a service charge. But here’s the extraordinary thing about the controversy. Most customers, the courts, regulators and the government are largely in agreement: there is a serious problem with tacking service charges onto bills. But restaurant owners simply don’t care. They think the charge is totally fair and will go to any lengths to levy it.ALSO READ: The Taste by Vir Sanghvi: An unnecessary controversy in Dubai over Michelin stars
The customer perspective is easy to understand. A service charge is supposed to reflect a customer’s joy at being given good service; it takes the place of a tip. How can restaurants (or hotels) just assume that you have liked the service and charge you for it?
Ever since the uproar started, over a decade ago, the best that restaurant owners can do is to claim that the charge is optional. Oh yes, they will still add it to your bill but you can complain and ask for it to be deleted from your bill, they will claim.
Regulator after regulator has ruled that a system where people have to opt out rather than opt in is inherently unfair to the customer. People should not be forced to engage in unpleasantness and demand that the charge should be deleted. They should be allowed to opt in and decide if they want to pay extra for service.
This seems simple and reasonable enough but restaurateurs refuse to see the point. Following the uproar many of them simply put up signs saying that a service charge would be added to the bill.
{{/usCountry}}This seems simple and reasonable enough but restaurateurs refuse to see the point. Following the uproar many of them simply put up signs saying that a service charge would be added to the bill.
{{/usCountry}}According to them, this was the same as making the charge voluntary because they had told guests it would be levied. If guests still stayed in the restaurant then their presence implied consent. Unsurprisingly, not many people - including courts and regulators - agreed with them. And the controversy still rages.
My view on this has always been simple. If you go to a restaurant and order, say a burger and a drink, you won’t say, when the bill is presented, I will pay for the drink but not the burger. We accept, when we place our orders, that we will be charged for food and drink.
The problem with a service charge is that nobody understands why it should be levied. What principle allows restaurants to charge extra for service? And what comes next ? Do we pay for use of the table? For the piped Muzak? All of these are facilities provided by the restaurant that are not listed on the menu. But nobody would dream of charging extra for them.
My question to restaurant owners is this: if you claim that you need to pay your servers then raise your prices. Why is that so difficult to do? If all restaurants do that then no one restaurant has a competitive advantage. There are enough restaurant associations which spend their time lobbying politicians for better deals for themselves. I have very little respect for most such associations (because they don’t really give a damn about customers) but if they get their members to agree to raise prices by say, ten percent, then the problem is solved. They will still make more money (which they can pass on to their employees) and nobody will accuse them of cheating their customers.
But somehow restaurant owners will never accept such a simple solution. Why is that?
The conspiracy theory view is that not all of them pass on the money they make on service charges to their employees. I have lost count of the number of restaurants where servers have requested me not to add a tip to the bill (I will usually tip extra if the service has been outstanding even if there is a service charge) saying things like “we will never get the money”’or “we don’t even get the money you pay as service charge”.
Of course, restaurant owners deny this, but when pushed, many will concede that they deduct money for their own expenses (say, breakages) before the service charge is distributed.
I don’t believe the conspiracy theory explanation. But apparently restaurant accounting is such that service charges are often not added to a restaurant’s profits. So they form a completely separate category for restaurateurs. For instance, if a restaurant has a profit-sharing agreement with a landlord, the money made from service charges will not be included. If a restaurant has many investors (which is increasingly the case), the restaurateur will not include the money made from service charges while distributing profits to his investors.
That’s why restaurant owners are so determined to keep service charges going. The calculation is that even if they are caught levying mandatory service charges, the fines are so small that it does not matter. The usual level of fines is between ₹20,000 to ₹50,000, which, in the context of restaurant turnovers, are not significant sums.
So is there a way out?
I don’t think there is. Restaurant owners have no reason to stop levying service charges. All it costs them is a week of bad publicity and tiny fines.
Would things be different if mandatory service charges were regarded as cheating the customer and treated as criminal offences?
Yes, it would. But no politician will alienate the cash rich restaurant industry so completely as to change the law to give it teeth.
So get used to this debate. Because it will rage on forever. And nothing will change