In the sweltering heat of Wednesday afternoon, Ram Singh was busy attending to half-a-dozen cars that had just swerved into the parking lot of a popular Punjabi cuisine restaurant in South Chennai. Though it was the middle of the week, the restaurant was full. But despite this flood of customers, the car valet had barely received any tips since the morning.
“Before, I used to get around Rs 1,000 in tips every couple of weeks,” he said. “But now, with the note demonetisation, I barely managed to scrape Rs 50 through tips. Nobody is willing to part with their change anymore.”
Despite this, Ram Singh said that he could, until now, afford to do without tips. Every month, along with his salary of Rs 7,000, Singh received an additional amount of Rs 800-Rs 900.
This was his share of the service charge that the restaurant levies on a customer. This charge is anywhere between 5% to 20% of the bill, and goes towards the services rendered by the establishment, right from parking the car to waiting on tables. It is generally charged in lieu of tips (though very satisfied customers can pay both).
From this month, though, Ram Singh’s earnings may drop.
On December 30, the Department of Consumer Affairs published a notification that sought to clarify that service charges in restaurants were optional. This clarification was made following several complaints received on the National Consumer Helpline that consumers are forced to pay service charge irrespective of the quality of service provided by restaurants.
The Hotel Association of India was also consulted on the matter and said that service charge is completely discretionary. “Should the customer be dissatisfied by the dining experience he/she can have it waived off,” it said. “Therefore it is deemed to be accepted as voluntary.”
Restaurant staff unhappy
Service charges were first seen in Indian restaurants around 2005-’06 and was adopted as an industry-wide “best practice” in the years from 2008 to 2010, said Riyaaz Amlani, President of National Restaurant Association of India.
Service chargse act as a reliable replacement for tips, which are unpredictable and erratic. Only the waiters get to pocket the tips, while the cooks, cleaners and other back-end staff get nothing.
In some restaurants, tips are divided between staffers across functions, but this is a rarity. D Sharfudeen, the kitchen-in-charge of a South Indian biryani restaurant in Chennai, said that in his restaurant they did not levy a service charge. Waiters were tipped by customers but nobody in the kitchen received anything. “My salary of Rs 13,000 a month is all I get,” he said.
A waiter at another South Indian eatery in the city, G Stalin, said that every week, the waiters pooled in a part of their tips to give the cooks. But the cleaners and bellboys got nothing.
However, service charges collected by the restaurant are usually distributed to its staff, sometimes equally, but mostly using a point system: each level of staff in the establishment is allotted points, depending on the kind of work they do.
“I get three points, but the manager who work above me get five points,” said Ram Singh, the car valet. “The total charge is divided according to the points we are allotted. So if I get around Rs 900, but my manager may get around Rs 1500.”
Professor Suren, principal of Chennais Amirtha Hotel Management College, Thoraipakkam, said that even with unequal distribution in the point-wise system, most staff members would prefer service charge over tips-only system. This is because tips are not always uniformly distributed and some staff may be unwilling to share their tip.
“But when it comes to service charge, it is shared even by dishwasher or sweeper,” he said. “So then if the business is doing well, everybody contributes equally in full spirit. The more the business, the happier the restaurant staff is. It works as an incentive.”
But now, tensions between the service staff and customers are also set to rise, as more restaurant-goers might decide to avoid paying service charges whenever they deemed fit. “Some customers are getting confused and are arguing with the staff that even service taxes are optional,” said Amlani.
Friction in the industry
Not only does service charge boost morale of the staff, it also eliminates ambiguity, said Riyaaz Amlani. “There’s no chance for the restaurant owner to cheat the staff because everyone knows how much is collected,” he said. “It is all above board.”
Amlani said that as long as service charge is mandatory, a very transparent process exists even in terms of taxing the services.
“There is no parallel economy when it comes to your bill,” said Amlani. “On the bill amount (including service charge), we charge Value-Added-Tax and Service tax as mandated by law. It is all very above board and clean and transparent. Eliminating services charges only mean pushing the whole thing underground.”
In addition to ambiguity, Amlani said that 40% to 60% of a restaurant professional’s take-home salary comes from the service charge. On the other hand, tips do not contribute anywhere near that amount, since most Indians don’t tip more than 3% of the bill amount, said Amlani.
“The biggest losers in the whole issue are not going to be restaurateurs or customers, it is going to be the poor restaurants staff,” he said. “They are going to be deprived of something that is rightfully theirs. The restaurant will continue making money, but the staff is the one that is going to suffer.”
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