We notice that different restaurants have different prices for the same product. A tandoori roti can cost anywhere from 10 rs. to 500 rs, depending on the restaurant.
So, what is the consumer paying for? The food, the service, the ambience, the facilities, or all of the above?
Now, when the bill/check appears, we notice that there is a charge for the prices of food we ordered(as per the menu), the applicable taxes, and a component called service charge/convenience fee.
What is service charge?
Conceptually, service charge is the charge to serve you on your table.
It is not supposed to be taken by the hotel. It is supposed to be distributed among all staff.
How is it different from a tip, then?
Earlier, restaurants had a tip box near the exit. We can still find it at heritage properties and at thali restaurants in Gujarat.
Whatever was dropped into the tip box was shared equally by all employees.
This system worked great, but the thing was, it gave the staff no reason to work better, since everything was shared equally. This was over and above their salaries and varied from day to day. But this way, they were able to take some cash home every day.
The hospitality industry has long hours, usually with no time to sit. You might want to observe the serving staff at a restaurant next time. Have you ever seen them rest or sit? Even when they are not serving, they are standing.
This daily tip kept the staff motivated. In fact, one of the stories about tipping says that TIP is actually an abbreviation of – To Insure Promptness.
To overcome the issue of rewarding people who do well, some restaurants made it possible for patrons to leave a tip in their folder. Usually, this tip would be pocketed by the serving staff, since, effectively, s/he was the service provider to the customer and it was his/her service that was being tipped or rewarded.
This is the practice we might find in many restaurants across the country today.
This, then, led to another problem – how do the kitchen and cleaning staff get rewarded for the service that they provide?
Enter, the Service Charge.
Restaurants started charging a uniform service charge in place of tips.
This service charge was to be shared with all staff – serving, kitchen, and cleaning staff (and security, and anyone else).
So, what seems to be the problem?
The problem is/are:
A. What if the service is poor and you do not feel like leaving a tip for the staff?
B. The charges at the restaurant are not charges for food alone. The idea of a restaurant is a place that provides the experience of eating out. This includes the ambience, crockery, cutlery, furniture, service, and food. One cannot be asked to pay separately for the service.
C. The responsibility of staff welfare rests with the restaurant. Not with the patron. The patron should not have to pay extra for the welfare of the restaurant staff.
How old is this Service Charge?
The honest thing is, we don’t know. It was not universally charged until the last decade or so. But we did manage to find a restaurant bill from as far back as 1971 where a 5% service charge is there.
However, the other old bills we saw did not have a service charge.
In January 2017, after several complaints by consumers, the government issued an order that service charge cannot be mandatory and if the customer asks for it to be waived off, it should be waived off without argument.
This was largely followed for a while, after which the restaurants started putting a notice at the door that mentioned the service charge at the establishment and invited guests only if they were willing to pay the additional service charge.
By 2022, we were back to square one – with restaurants declaring a mandatory service charge at the gate and customers being unhappy with it.
What are the guidelines issued today?
On 2nd June 2022, the restaurant bodies were called for a discussion by the Consumer Affairs Ministry. This was a result of multiple complaints by consumers about mandatory service charges.
On Monday, 4th July, 2022, the Central Consumer Protection Authority (CCPA) barred hotels and restaurants from levying service charge automatically or by default in food bills and allowed customers to file complaints in case of violation.
This means that hotels and restaurants cannot force the customer to eat only if they are willing to pay 10% extra service charge.
The guidelines mention that:
A. A component of service is inherent in price of food and beverages offered by a restaurant or hotel.
B. No restriction on entry or provision of services based on collection of service charge can be imposed on consumers.
C. Service charge cannot be collected by adding it along with the food bill and levying GST on the total amount.
D. Customer can ask the service charge to be removed from the bill if they notice it.
E. Customers can also lodge a complaint on the National Consumer Helpline (NCH) by calling 1915 or through the NCH mobile app. They can also complain to the Consumer Commission. The complaint can be filed electronically through the e-Daakhil portal or by e-mail at com-ccpa@nic.in.
Industry responds
The Federation of Hotel and Restaurant Associations of India (FHRAI) is the highest body of restaurant and hotel owners of India.
FHRAI has maintained that service charge is legal if announced at the gate.
After today’s order, the response of FHRAI is yet to be received.
National Restaurants Association of India (NRAI) has expressed displeasure at the guidelines.
What happens in other countries?
In Europe, it is customary to leave a tip. In some places, it is mandatorily added to the bill.
In the US, it is optional at many places and required at others.
In most of South East Asia, it is completely voluntary and depends on the customer’s experience and willingness.