Even after the government has clarified that paying the service charge in a restaurant is up to the consumer, the debate seems to continue.
What are the arguments in favour of the charge, and what against? Also, what does it tell us about the economics of the hospitality industry?
Let’s have a recap of what you already know by now. Early this week, the government issued a directive making service charge discretionary. Though not new, the news went viral, in spite of the fact that service charge has been in existence since the first international brand set shop here. And I don’t just mean hotels but flights too, who charge you on a different name.
What ensued can be described best as uncovering an ant village. For a certain segment, it was realisation quickly turning into anger for paying that part (10 per cent in most cases, not the high 20 per cent as reported in some papers) of the dine-out bill that they could have otherwise saved. Another small segment decided to take that point to try and unearth if there was more to the bill than revealed.
Of course, what could have been a mere discussion of whether to pay or not has quickly spiraled into a debate of good or evil with National Restaurant Association of India (NRAI) President Riyaaz Amlani petitioning for the service charge to be made mandatory. His argument -- when Supreme Court ruling and Consumer Court verdicts have upheld the payment of service charge, the government cannot overrule it just with an advisory. If one visits the NRAI website (nrai.org), they can see cases as reference to Amlani’s argument.
What eventually will be the outcome is still in the haze. But that’s the finale. What needs understanding now is why the service charge was introduced in the first place. Is it logical, and why should one continue to pay that 10 per cent, and what exceptions can one make if there is a situation where the experience is really bad?
Tips and service
There is a common assumption that service charge is just another fancy name for tip, or as the seventeenth-century Brits would call, “To insure promptitude”. In India, some call it bakshish, which is a reward for good service, done willingly and satisfactorily. Of course, in both cases, the amount was whatever one could afford – and hence remained limited to the well-to-do.
For most Indians, tipping is in fact a subject still in its infancy. We don’t have rules as such, and if you are not part of the hospitality industry, there is a good chance that “what is a good tip amount” is hard to ascertain. Although, to be fair to diners, globe-trotting has helped, and we are inching towards it, but we still tip with our heart, ruled by how much we have in our pocket. And this could be one of the primary reasons that service charge seems like a roadblock, and an unnecessary one at that. Not helping the service charge case too is our perception of good service.
As per the rule book, the duty of a service staff – which is the waiter or server to whom, till recently, all the tips were directed to – is to give you the menu, ask for water, take the order, bring in the right order to your table and be polite all the time while doing this. They are under no compulsion to have a conversation with you, make suggestions from the menu, take those happy selfies, change the dish as per your whim on your behalf or even accommodate requests that are not part either of the menu or restaurant principles – like getting an extra bowl of onions, asking the chef to put more garlic, playing with your baby, reducing the volume of the music or even ensuring your water is refilled all the time or even taking back the cocktail the third time because now it has become warm. Understandably, all these extra steps are considered “part of their job and even abused lately with a threat of social media” in India.
Fascinatingly, it is for these very qualities that the Indian service staff is considered the best in the world, and has even enabled our hotels to have an efficient room-service segment, which is a luxury for most hotels abroad, even the famous ones. How much are the trained service staff valued elsewhere can be ascertained from the fact that back in the mid-1980s, whenever a cruise liner would pass by Mumbai, the Oberoi Hotel would lose a major chunk of its service staff.
Not much has changed today. When it comes to poaching, the service staff is followed by the kitchen hand and then the chef – and in that very order. Ask a restaurateur today and he will confess that his biggest fear is losing his service staff to a competitor.
Consider this: a waiter in a fine-dining place earns about Rs 5,000 on a weekend and a paltry thousand on a weekday (of course, there are exceptions), in contrast to someone in a casual coffee shop who makes that on a Monday itself. Till the latest Minimum Wage Act kicked in, a direct tip was the actual salary a waiter or service staff earned after being employed at a salary of Rs 3,000 for a 12-hour shift. This also explains why tips are so religiously sorted out in trains as well.
Having said that, while tips may have started to encourage good, repetitive service, they haven’t been the sole reason behind the good behaviour of the service staff in India – who put in their best, believing in “atithi devo bhava” and the success of the brand. So even if you have not tipped them, you can still visit the restaurant and be greeted with a smile, given the menu, asked for mineral water and, in spite of the annoyance, would still be asked about the food and anything more you need during the meal. That’s the hallmark of Indian service.
Then, why call it ‘service charge’?
Because it is not a direct tip, and would go to the entire team, including the cashier, cleaner, commie, dish washer and even the security guard, aside from the service staff who became your ‘best man’ for a memorable experience. In fact, it was a concept that originated abroad as part of the anti-tipping movement started by a few restaurateurs, who found direct tips creating a rift in the team. After all, good service meant not only the service of the waiter but the whole team. Service charge as a concept came to India with the big international brands, including hotels, restaurants and even airlines, who levied the charge as part of their services.
Was it instantly adopted by hotels in India? Not really. In India, service charge was levied only on the use of banquet halls, and this was the case with both domestic and international brands, though there are exceptions to this rule too. The restaurant business was a late riser to the concept, and adopted it in the last few years as the dining-out culture developed. But unlike their foreign counterparts, where 18 per cent charge is mandatory, it was kept optional here.
But we weren’t informed…
Restaurants, hotels and other places have been transparent and vocal about service charge – when they levied it and when they did not. A little trick to find out whether the charge was levied or discretionary was by looking at the menu. It is customary for most restaurants in India to use the bottom strip in the menu to state the taxes levied, including service charge, which largely remained the diner’s call. The amount is calculated on the menu price of a dish.
But 5-20 per cent? Isn’t that on the steeper side?
Agreed, 20 per cent is steep. But in India, a large percentage of restaurants – and this includes those in the hotels – do not charge more than 10 per cent. The reason for the huge disparity is that service charge is decided by the management of the restaurant, depending on how many covers they sell on an average. Also, service charge isn’t levied on home deliveries even if you order from the same restaurant that would put service charge on the bill if you had a meal there.
As opposed to the 30-35 per cent of tax that goes to the government directly, the service charge goes directly to the people you want it to – and is no way pocketed by the restaurants. In fact, service charge benefit is part of all employees below manager level – and is paid as a variable component in most places. Thanks to service charge, restaurants in India too experience a certain level of stability when it comes to attrition – and also a rise in performance level of the existing staff.
This is what Amlani meant when he spoke about “transparency in work”. If you believed other sectors didn’t charge, then look for words like convenience fee or as auto-gratuity.
So what would happen if you don’t pay?
There are two ways that the industry can handle this. Some will increase the price to ensure business floats amidst rising rentals, food costs and plenty of licensing, while others would turn service charge mandatory or even opt for QSRs instead. Rest assured, you will still continue being served with the same warmth and patience our hospitality is known for.
One reason though, that you should not pay the service charge is service tax. While most places have their own complex way of arriving at that mandatory figure, there are places where service tax is calculated on the basic dish cost and service charge. But, given that most places till recently recomposed the bill if you didn’t want to pay the service charge, the idea needs a little more reasoning.