Service Charge vs. Tip: What you need to know
Imagine dining out with your wife at a restaurant: -
Scenario one: After going through the menu, your wife orders a grilled salmon with a salad. You on the other hand, prefer to try out the roast chicken accompanied with French fries. The fish dish costs Rs 6500 and the Chicken Rs 3500, respectively. The style of service for both food choices is pre-plated. Meaning: the food is totally prepared, portioned and plated in the kitchen. This restaurant, like the majority of hotels in the country, levies a 10% service charge on its prices. A service charge is an addition to the customer’s bill that is mandatory to pay. Hence, the service charge on the total bill works out to Rs. 1000.
Now let’s move on to the tipping culture which generates a lot of controversy, especially in the US and other European countries. The Cambridge dictionary defines tipping as “A small amount of money for someone who has provided you with a service, in addition to the official amount and for their personal use”. Tipping pays a valuable role in supplementing the income for workers who earn a low base salary, such as servers in the hospitality industry, in particular those in the US, who earn below the minimum wage.
The footprint of gratuities, not only in hospitality, but also in the entire services industry is as ancient as Roman times. Tipping is prevalent in various service industries, including food service, lodging, retail and personal services and transportation. Tipping has been a gratuity, or an additional payment made at the customer’s discretion. In restaurants that add a mandatory service charge, the tip would still be an addition (optional) to the required service fee.
Scenario Two: The restaurant you visit does not add any service fee to the bill. Instead, it expects the diner to tip the server in line with the prevailing industry standard – somewhere in the realm of 15-20%. When one does the math, the expected tip on the Rs.10,000 total bill, would be between Rs 1500 - Rs 2000. This is more likely a restaurant where the diners are in charge of paying the waiters/waitresses salaries, instead of the employer. Adding to this puzzle is that service quality had little influence on tips.
At the beginning, it was thought that the prospect of tips will provide an incentive for servers to turn tables, which can also be good for the business – but not necessarily for the diners. But now, even when poor service is delivered with a bad attitude, the server expects the diner to tip. Like this, there is an array of situation-related factors that one has to consider.
Time and Effort related: An experienced barkeeper can flip open eight bottles of beer within 12 seconds. On another occasion, making five multi-ingredient cocktails garnished with olives and a tiny umbrella on each may well take four minutes. Now, these two separate orders might cost the same amount. It’s highly unlikely that these two orders will be tipped equally…and that’s acceptable. Whereas, had the restaurant levied a service charge (as in scenario one), the service charge levy will be more or less the same! Now that seems lop-sided – doesn’t it?
Product and Service related: Does one tip the server for providing good service, when the food was below average? I guess so, no point in taking it out on the server. It’s best to complain to the manager. On the other hand, what if the service was lousy despite the excellent food? Your guess is as good as mine.
What works for those in favour of the service charge approach is that it can help raise the wages/ salaries of all non-tipped employees, such as kitchen staff, helpers, busboys and junior executive level staff, so that the service charge can be shared by all employees.
Shafeek Wahab– Editor, Hospitality Sri Lanka, Consultant, Trainer, Motivational Speaker, Mystery Guest Auditor, Ex-Hotelier
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