Shouldn’t the diners decide on paying the service charge?

Shouldn’t the diners decide on paying the service charge?

“It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages.”
- Henry Ford

Henry Ford has very aptly described the industry, especially service industry, in the above words. This also puts light on the matter which is raging since few months regarding ‘service charges’, charged in hotels and restaurants. The practice of charging ‘service charge’ has polarized the scenario of the hospitality industry making it customers versus the restaurants. An industry which runs on the premise that the customer is the ‘king’ is mired in a controversy that will surely tarnish its image if the situation is not rectified. Inappropriate service charge practices are being criticized by many and even the government of India has taken steps to address this issue. Recent guidelines by the government though considered a positive step by customers, needs the backing of a law to give it teeth. Also, the hotels’ associations are adamant that these are mere guidelines and they will keep on charging service charge. It is important to understand what both sides have to say in this issue.

For the benefit of the employees -

1. It is for service provided - Service charge is charged by the hotel management for the services offered by them to the customers. Nowadays, hotels are going the extra mile for giving best service to the customers. So they have right to charge for their extra efforts.

2. The charge helps the employees - The service charge charged on the bill goes to the employees who generally are seen to have wages on the lesser side and this helps them augment their incomes.

3. Uniform distribution amongst employees - This system is better than tips because, it is not just the server who provides a good service, but even the valet, the cook, the cleaner, room housekeeping, etc. Tips go to the server/waiter only. So if the server is not good, customer would not tip and no one would get any benefit even if they provide excellent service. Service charge makes sure this money goes to the management who can distribute it amongst all of the people equally or depending on each one’s contribution.

4. Other industries levy it - Many other industries levy it like the cosmetic industry which includes salons, etc. So singling out hotels and restaurants by making it optional to pay service charge there, is not appropriate. Also, hotels and restaurants support more than 6 million people’s jobs. Thus the charge helps 6 million employees directly. So, we can say that there is no malpractice when such charges are levied in hotels and restaurants.

It is exclusive prerogative of the customer

1. Customer must decide - Since the customer is at the receiving end of the service, it is the exclusive right of the customer to decide how much he/she wants to pay as service charge. It is nothing but a tip which is given in restaurants.

2. Difference between service tax and service charge - Service Tax is charged by the government and is uniform. It is 15%. This tax paid by the customer goes directly to the government. It has to be paid. However, Service Charge is levied by the hotels and restaurants as per their own will. It has nothing to do with government taxes. Also it has no legal backing as far as government taxes are concerned.

3. Variable amount - The amount of service charge varies from establishment to establishment. This has been seen to go from 5% to as high as 20% too. This is sheer exploitation as this charge is directly added to the bill of the customer. The customer must decide how much he wants to pay for the service.

4. Unfair practices - Many restaurants and hotels have started including this so called ‘service charge’ directly in the customers’ bills. Many customers are unaware of this and pay this charge even if service is not that good. They think it is some tax levied by the government. Also, since it is named service charge, it is confused many a times with service tax.

5. Service charge must be earned - Since it is like a tip it must be earned by the employees and the establishment by providing good service. It cannot be made mandatory or slipped into the bill oblivious to the customer.

Though the intent of the hotels and restaurants may not be nefarious, since this concept of service charge is similar to tipping a person providing service, it must be voluntary. Even if we agree that this service charge in hotel is something that the employees get and this augments their income, it has to be earned just like the tip is earned. Recently the government of India too has made it clear that service charge is not compulsory and the customer can pay it only if they want to. The amount too should be decided by the customer. A blank column must be there in the bill for the customer to decide how much he pays. If service provided is very good, the customers would surely appreciate it and pay the service charge as per their ability. Bad service cannot be rewarded. Also, there has to be transparent mechanism that can show how much of the tips/service charges paid by the customers actually reach the employees.