The consumer affairs ministry has acted upon a few complaints from some consumer activist groups who said that people are being fleeced because they were being charged service charge in restaurants. And they’ve decided that service charge was in lieu of tips. Now, they did not actually seek representation from any hotel body; they just randomly decided that service charge means tips.
There is a Supreme Court law, which is a settled law, that service charge is perfectly legal. The apex consumer court has actually upheld service charge. This notification from the consumer affairs ministry is not law, and it does not override the Supreme Court rule.
We are very clear that service charge is very different from tips. Service charge is a charge which a restaurant puts out which is a true value which it perceives to be of its goods and services. So, for example. if I’m selling, lets say, an appetiser for Rs. 100 on my menu, and I consequently mention on top of my menu that ‘we charge a 10 per cent service charge’ over and above the price, then my menu dish price is Rs. 110. There is no room for ambiguity or any kind of discretion.
The problem is between a customer ordering something in a restaurant and once he has seen the menu price, he agrees to the menu price and he pays for it. There’s no room for ambiguity or discretion. Tomorrow he says, I didn’t like the temperature of the food, or I didn’t like the food, then he will not pay for that? This will be anarchy.
There’s also the argument, which is: why are the restaurants not paying for their staff? Let me tell you, the restaurant is paying for the staff. If we build it into the billing price, what will land up happening is that menu prices will go up by 10 per cent, and then the customer will feel compelled to tip on that increased price.
And that will only make things more expensive. By keeping a service charge, we’re keeping things very transparent. We’re collecting it officially on a bill. You’re billed for it, so it’s nothing something that you’re not billed for, so if you’re paying by credit card or whatever, it just becomes much easier. When we disperse it, we deduct tax at source, and when we collect the service charge we pay VAT and service tax on it, as per the government requirement. And it is for all the staff members to see how much service charge is collected, and therefore how much needs to be distributed. This keeps things very transparent, and the customer knows that you are paying for service charge and there’s no need to tip further.
One more thing to point out, is how detrimental this is going to be for a lot of the hospitality professionals. Depending on which restaurant you go to, 40–60 per cent of their monthly take-home comes from service charge. So you’re actually taking away about 40–60 per cent of that poor guy’s take-home, and that is really, really not fair. The fact that it is collected above board, and the fact that it is collected for the staff: 100 per cent of the money is given to the staff, or is used for staff welfare activities. So usually the practise in most restaurants is that 70 per cent is disbursed immediately and 30 per cent is kept for exigencies, emergencies, staff grooming, breakages, shortages and if there’s any leakages that gets paid for from there. So the staff does not bear the direct brunt of that. And when the staff needs the money it is available for them.
By pushing tips under the radar, you are actually doing a greater disservice, because the tips are not being accounted for. So if somebody slips the waiter Rs. 100, the waiter puts it in his pocket; he does not share it with the back of the house, he does not share it with the kitchen, he does not share it with the valet, he does not share it with the toilet cleaner.
Service charge ensures that everybody works as a big unit; it is not that one guy is running behind a big tipper, but rather everybody is invested in the restaurant doing well. It works for the restaurant, it works for the staff, and it works for the people because the prices have been kept low and reasonable.
As told to Aatish Nath
Riyaaz Amlani is CEO of Impresario Entertainment & Hospitality and President of the National Restaurant Association of India
