Service charge

To pay or not to pay service charges in restaurants? What the government guidelines say

Consumers are “forced to pay service charges, often set at arbitrarily high rates,” the Department of Consumer Affairs told restaurant owners. He reiterated that restaurants collect the fees by default, even if they are voluntary

Payment of service charges is not mandatory in restaurants, in accordance with government guidelines. Image for representation purposes/AFP

The Union government has closed restaurants for forcing consumers to pay service charges after a meal. The Department of Consumer Affairs called a meeting on June 2.

What is a service charge?

A service charge is a tip or a direct transaction between the customer and the servers.

It is a fee collected to pay for services associated with the purchase of a main product or service. Fees are applied at the time of the transaction.

A service charge is levied by the hospitality and food and beverage industries as a guest service charge.

Why are hotels under the scanner?

In a letter to the National Restaurant Association of India (NRAI), Consumer Affairs Secretary Rohit Kumar Singh said restaurants and eateries collect service charges from consumers by default, although this is supposed to be voluntary and at the discretion of consumers.

“It was pointed out in the letter that consumers are forced to pay service charges, often set at arbitrarily high rates by restaurants. Consumers are also being misled about the legality of these charges and harassed by restaurants when they ask to remove these charges from the bill amount,” said a statement released Monday by the Department of Consumer Affairs.

“Given that this issue affects consumers as a whole on a daily basis and has significant consumer rights ramifications, the department has found it necessary to examine it more closely and in detail,” he said.

The letter also recalled the 2017 guidelines issued by the Department of Consumer Affairs.

To Pay or Not to Pay Restaurant Service Charges What Government Guidelines Say

The Center has closed restaurants and called a meeting on June 2 to discuss the service charge issue. Image for Representation/PTI Purposes

What do the 2017 guidelines say?

The Department of Consumer Affairs issued guidelines in April 2017, specifying that the payment of service charges or tips to staff, and the amount of tips, are left to the discretion of customers. Hotels and restaurants cannot necessarily collect the amount from them.

The department, which falls under the Department of Consumer, Food and Retail, had drafted the guidelines after noting that some hotels and restaurants were charging customers for tips “without their express consent in the name of service charges”; some bar consumers from entering their premises if they do not agree to pay a service charge, and customers pay servers tips in addition to the service charge under the mistaken impression that it is part of the taxes.

“Tips or gratuities paid by a customer correspond to the hospitality received by him beyond the minimum basic service already contracted between him and the management of the hotel. It is a separate transaction between the customer and hotel or restaurant staff, which is concluded, at the discretion of the guest,” the guidelines note.

Charging anything other than the prices mentioned on the menu card and/or restricting the customer’s entry or forcing them to pay the service charge as a condition of placing the order would constitute an unfair commercial practice.

In such cases, the customer may apply to a Consumer Dispute Resolution Commission/Forum and has the right to be heard and redressed.

What is discussed at the meeting?

At the June 2 meeting, four issues relating to service charges levied by restaurants and hotels will be discussed. These include the improper practice of making service charges mandatory, adding service charges to the bill under the guise of other fees or charges, removing consumer information that service charges service are optional and voluntary, and to embarrass consumers who resist paying for them.

Why do restaurants continue to fail?

The guidelines approved by the Union Government are advisory in nature. In the absence of specific legislation, it cannot take strict action or impose fines for violation, according to a report in The news minute.

Even the Consumer Protection Act 2019 says nothing about service charges or tips.

Restaurant owners also argue that service charges are optional and waived if diners choose.

When a customer requests, charges are waived, but such requests are few, restaurateur says India time. He added that the service charge is 10% of the bill and the money goes to the staff.

With contributions from agencies

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