Why There’s a Debate About Restaurant Service Charges

Working in the hospitality industry is not easy. Salaries are generally low, the grind itself is taxing, and the notion of service charges is a dull area for both employee and customer. Not much can be done for the hard work part; That said, there are undeniably a few systems, such as service fees, to simplify the process of rewarding good customer service and encouraging workers to do an even better job. If you still think the service charge is not worth it, just calculate that if a small reward can help them pick up even Rs 100 per day, they can earn around Rs 36,500 for the year , in addition to what they receive as salary, and you are also assured of adequate service.

Service charges have been a universally recognized and widespread best practice in India for over 25 years. The approximate amount is 10% all over India, much less than the 15-20% in the US or any other place abroad.

The central government has advocated that restaurants should not impose service charges on customers and that these charges should be non-compulsory and customers should not feel uncomfortable about it. This stems from many consumer grievances about restaurants forcing them to pay service charges, even though they are voluntary. The National Restaurant Association of India (NRAI), in response, clarified that there is nothing forbidden about service charges as they benefit businesses, workers as well as the government. “It is neither illegal under any provision of the current laws nor a hidden charge. Charges are well displayed. Even the MRTP (Monopolies and Restrictive Trade Practices) had confirmed in a case involving Pizza Hut in 2001 that charging a service charge – if pre-informed to a consumer – is neither restrictive nor wrong in law. The fact that service charges attract GST (goods and services tax) further confirms this,” says Anurag Katriar, NRAI Trustee and Founder and Managing Director of Indigo Hospitality Pvt Ltd.

Katriar considers the argument that menu prices should be increased instead of levying service charges separately to be “misplaced”. “If we raise the price, a significant portion of it will go to owners wherever revenue sharing applies, as well as to aggregators who charge a commission on sales volume. The only victim will be millions of employees whose rightful share will go in part to owners and aggregators. I am convinced that the government will take all of this into account before proposing new guidelines on this subject. Changing a decades-old practice that can potentially harm the interests of millions of working poor and provide undue benefits to landlords or aggregators is certainly not the government’s intention,” he says.

Like any other charge collected by an establishment, the service charge is part of the transaction and is clearly mentioned on the menus offered by some restaurants. It’s up to customers whether they want to patronize the restaurant or not. “Some segments of the media are exaggerating what the consumer department has said. They (the department) have simply stated that they will establish a framework for the collection of service charges after hearing from all parties. Service charges fall under of the restaurant’s individual policy. There is no illegality because we pay the GST on this and it is mentioned on our menus; so that consumers know what they will pay at the end of the meal”, explains Japtej Ahluwalia, Founder and Executive Director of Pricol Gourmet “Service charges are a global best practice for motivating your staff alike, as multiple people are involved in bringing your dish to the table. In my experience, in our restaurants, only one in ten customers discuss the service charge because they find it a convenient way to tip.

Union Consumer and Food and Public Distribution Minister Piyush Goyal said last week that restaurants could not impose service charges on consumers and were asked to raise prices if they wanted to increase the salaries of their staff. “The restaurant association has strongly reiterated all facts with evidence to the department that the service charge is neither illegal nor an unfair business practice as alleged,” argues AD Singh, Founder and Managing Director of Olive Group of Restaurants. “This debate in the public domain is creating unnecessary confusion and disruption to the smooth operation of restaurants.”

“Writing the service charge as optional or discretionary on its menu and adding 10% is absolutely fair. Customers unhappy with the service can opt to have it removed. It seems like the agencies promoting this program really haven’t thought about this,” says Rakshay Dhariwal, Founder and Managing Director of Pass Code Hospitality. “This whole fee-for-service fiasco has come to naught and is yet another inconvenience to our industry, which happens to be the second largest employer in the country. Many restaurants and bars will be [now] adopt all-inclusive pricing and integrate the service charge component into the price of a dish.

According to Riyaaz Amlani, Managing Director, Impresario,Service fees are good for the customer, the staff and the industry as well. In all cases, service charges are optional and deducted if customers choose, but such requests are rare. The amount goes to the staff and is divided equally.

—Akanksha Dean is a freelance chef, events specialist, and food and travel writer

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