Service charge: The unsavoury row over ‘forced’ restaurant tips in India

On Thursday, as the Indian government meets restaurant officials to settle the contentious issue of the service charge customers often have to pay when they eat out, the BBC explained the unsavory row over tips.

A few months ago, Nicole Ruth Ellis visited a restaurant in Mumbai, the city where she lives and works.

The 27-year-old brand strategist describes herself as a “foodie” who eats out at least twice a week.

“But that night the service was really bad. They served the pizza in a deep plate so it arrived broken.”

Once, she says, the waiter came by to ask her if she liked the food.

“I was honest with him, I told him it wasn’t great. He heard me, but then he just walked away.”

When the bill came, she says, it included a 10% “service charge.”

“I’m not argumentative, so I didn’t say I wouldn’t pay the service charge, but I believe we should only tip when the service is really great.” It shouldn’t be forced on us,” she tells me.

Up until a few years ago, tipping in India was at the discretion of the guest, but then many restaurants started charging a service charge – anywhere from 5% to 15% of the bill.

One restaurant owner told the BBC there were two reasons for introducing the service charge – to ensure tips are not collected from the waiter but shared by all staff including cooks, janitors, cleaners and dishwashers; and because most Indians are not “lavish tippers” – a claim disputed by Vir Sanghvi, India’s foremost food critic and perhaps its most prolific diner.

“I don’t think Indians aren’t generous when it comes to tipping. I see people often tipping not only waiters but also bouncers and bellboys in hotels,” says Mr. Sanghvi.

The tipping culture, he says, came to India from the West. Just as in 1960s America employers could pay workers below minimum wage if they earned tips, so in India in the 1950s and 60s—just a few years after the country’s independence—“many standalone restaurants in Delhi’s Connaught did Place or Kolkata’s Park Street or Mumbai’s Churchgate Street pay their waiters no salaries at all and expect them to make do with tips”.

But in 2022, eating out is big business in India as the industry is valued at Rs 4.2 trillion (US$55bn; £43bn).

“And even today, unless waiters are employed in starred restaurants, they are paid very poorly and are expected to make up the shortfall through tips and service charges,” says Mr Sanghvi, adding that “it’s the restaurant’s job to pay his staff, not the customer’s”.

The Indian government also insists that “the service charge is voluntary and payable at the discretion of the consumer”.

In 2017, the Department of Consumer Affairs issued a set of guidelines that say customers only have to pay what’s listed on the menu along with government taxes and face additional charges without their consent, which amounts to “unfair trading practices.”

However, as most restaurants continue to add a service charge to the bill, authorities have convened the National Restaurant Association of India (NRAI) for a meeting on Thursday.

In a letter to the NRAI last week, the department said there had been complaints from consumers that they were still “being forced to pay a service charge, often set at arbitrarily high rates” and that “they were being harassed if they ask them to remove the bill”.

The NRAI, which represents more than half a million restaurants, has denied the allegations of illegality. A statement sent to the BBC said customers were made aware in advance of the service charge “as displayed on the menu cards and also on the premises. Then it becomes an agreement between the parties and is not an unfair trade practice”.

Some restaurant owners also said guests unhappy with the service could ask for the fee to be removed from their bill.

“If the diners are unhappy, a good restaurant would immediately deduct the service charge, no questions asked,” said Saurabh Khanijo, owner of Kylin, a chain of popular Pan-Indian restaurants.

“We don’t even charge for a dish if a customer isn’t happy. Think about it – it works in our favor. If I treat the guest well, then he would come back,” he added.

But a refusal to pay the service fee doesn’t always end well, forcing customers to go to court – some have even won compensation.

As Ms Ellis said, customers like her are too embarrassed to insist on taking it off their bill.

Mr Sanghvi has argued for years that tipping should be abolished altogether because:

A service fee, he argued, was a better choice — at least “in theory.” But he worries that “unscrupulous restaurateurs often don’t pass all the money on to the staff and that too much is taken away from them as deductions for breakage and other things and that’s not fair” – a concern that isn’t limited to India.

“Ideally,” says Mr. Sanghvi, “I always say raise your prices and pay your workers well. Raising prices by 5% will cover all damages and a small price increase won’t drive your customers away.”

But poor service does, says Nicole Ruth Ellis.

“For me, food is a very emotional thing, so service when it’s not great, especially when I’ve been somewhere fancy, is very important to me,” she says. “When I see bad service or a rude waiter, I wonder if it’s because he doesn’t get the money I pay as a service fee. So I’m hoping that when I’m happy with the service, it goes off the bill and I can pay.”