Indian restaurants and service charge

More and more Indian restaurants charge a “service charge” on their bills these days. It’s usually somewhere in the 5-10% range, unless you’re in Delhi, where 10% is almost standard. Being in the F&B business and having run a restaurant of my own, I thought I’d write this post to clear up some common questions about it. I get asked these often enough that having a post to clarify is worthwhile.

Is service charge mandatory as per any government regulations?
No, not at all. It is completely at the restaurant’s discretion. Not all restaurants charge it.

Do I have to pay the service charge? 
If the service charge is disclosed in the menu, you have agreed to pay it by virtue of placing an order. That’s a legal contract.

Why is there a service charge at all? I don’t understand the point of it.
Because the industry works on a principle of low salaries and extra money through tips. Indians are notoriously lousy tippers (yes, I know, not all of you.) The service charge gives a more reliable income source for wait staff while aligning their incentives to restaurant sales (given that the charge is a percentage of sales).

In an ideal world, wait staff would be paid a more reasonable wage and there would be no need for the service charge. Unfortunately, that has the effect of upsetting the profit equation in the business by increasing the percentage of sales that goes towards salaries. For instance, 15% of turnover is considered about average for salaries. If that became 30%, restaurants would need to increase base prices of dishes, which would have pretty much the same effect as that service charge levy anyway, except that some customers would think the food is more expensive and not visit, which would actually make things worse.

But I got lousy service, man! WTF?
None of this excuses bad service, of course. If you get bad service at a restaurant and get a service charge on the bill, you have options:

1) Talk to the manager, register your complaint, tell him/her you won’t come back because of the crappy service. Possibly bitch about it on a food forum or on social media. Any half-competent manager will realise the bad PR potential and waive it.

2) Do not return to the restaurant. This isn’t too far-fetched; you would probably not go back to a restaurant with crappy service even if they didn’t levy a service charge, right?

OK, tell me the truth. Does this money actually go to the service staff at all?
That depends on the restaurant. Most will pay out a large percentage of the service charge to wait staff, somewhere around 60-80%, usually setting some money aside for breakages etc. Sometimes, the kitchen staff too get a portion of it.

Do I have to leave a tip if there’s a service charge on the bill?
Don’t leave a tip if there’s a service charge on the bill unless you think the service has been that outstanding.

Hope this clarifies things from a restaurateur perspective.

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8 Responses to Indian restaurants and service charge

  1. Thanks a lot for the information. This was very helpful.

    Another this is I get confused sometimes by the charges and taxes levied on top of a bill. Sometimes there are 2, sometimes 3. There is VAT off course. Can you also write on different taxes and charges charged on top of a bill and why?

  2. Sowmya says:

    Thanks! That was very helpful.
    In case no service charge is levied, what is the acceptable amount or percentage that should be given as a tip?

  3. Sumit Gulati says:

    Nicely written article….one more thing where service charge helps is that it is distributed with the kitchen team too…who’d never get a share of tips otherwise….lets face it….if the food was horrible and service excellent – you wouldn’t leave a tip anyway! so it’s a bit more fair that way!

  4. channi says:

    why a customer is forced to pay tip in the name of service charges…either it is mentioned on Menu or not…most of the times it is not even readable…otherwise it should not be treated as Contract as it is to explicitly known to customer before ordering any food item

  5. raghu says:

    recently i visited a restaurant and saw a fight between the manager and customer
    for services charge

    is there any kind of permission or any kind of act processed by government to the restaurant

    for charging 10%services charge

  6. Bablu Tamang says:

    it is true but most of the restaurant service staff getting only 03 to 04 percent service charge from the management . which is paid by guest.
    may be u socked.! but myself a captain at restaurant ..
    please get me your feedback on this real happinings…

  7. Hope these restaurants provide the service as well at par with the service charge.

  8. Nitin Gupta says:

    I will not agress, With India Road Trip Comment:-
    Reason: They are already charging at much higher rate.

    Example:
    Tea at Road shop will cost u Rs. 5-6
    Tea at normal shop will cost u Rs. 10-15
    Tea at Hotel will cost u Rs. 50-100

    Then from where this service charge will come in picture.