Restaurant Keep 40-60% of Service Charge Collection! Are They Being Fair to Their Staff?

A shorter version of this article appeared this morning in my bi-monthly column, Fortune Cookie, in Mail Today. Here's the link to the column:

http://www.dailymail.co.uk/indiahome/indianews/article-2590230/FORTUNE-COOKIE-How-service-charge-does-restaurant-itself.html

By Sourish Bhattacharyya

FACEBOOK discussions have now become my most important source of news and I'll tell you why. Just the other day, I initiated a chat, which snowballed into a debate, and I got to know that restaurants keep 50-60 per cent of the service charge they collect from you. This fact, and it has serious implications for the quality of service you get, was confirmed by two restaurant consultants who participated in the discussion, and I found it really cheap of restaurants not to disclose it.

Restaurants keep 40-60 per cent of service
 charge collections, which are ostensibly for
 the staff, to pay for breakages of expensive
glassware and even for such basic benefits as
night pick-ups and drops for employees

The discussion was triggered by a U.S. survey, which has reported that an overwhelming majority of guests at full-service restaurants no longer leave behind a 20 per cent tip / gratuity / service charge, a long-time industry norm. Only 23 per cent of the survey respondents said they fork out 20 per cent and above; 29 per cent stick to 10-19 per cent; 35 per cent pay less than 10 per cent; and a surprising 11 per cent admitted to parting with no money, which I find a little hard to believe in the light of the number of horror stories I have heard about waiters in America being plain nasty with customers in case they forget to pay!

Such reports are coming out almost daily in the U.S. because hospitality industry compensation issues have gathered importance following union actions last year for a 'living wage' across America's super-sized fast-food sector. In India, no one I know has studied the issue, which has serious implications on the quality of the service we get. To get the local picture right, I turned to Raminder Bakshi, my go-to person for information on the restaurant sector.

Bakshi said two models of service charge distribution are in place in restaurants. One is the 50:50 model, where the employer keeps 50 per cent for employee pick-ups and drops (which I thought was the statutory obligation of employers towards their women staff and employees working on the night shift) and breakages in the kitchen and front of the house (restaurants owners I spoke to insist they don't factor these in while determining menu prices). The other model is 40 per cent for the management (to be spent on "staff welfare"!), 40 per cent for the staff and 20 per cent for the safety net for breakages.

I called up another of my favourite sounding boards, Atul Kapur, Managing Director of WG Hospitality, which is the company that operates the Q'BA chain of restaurants. "Breakages are an issue in restaurants and by taking a part of the service charge collection, we not only ensure that the staff behaves responsibly, but also cover our costs," Kapur said, adding that the percentage that is held back varies from one establishment to the other. Kapur agreed this practice benefited the business more than the customers, but he was quick to point out that in the absence of it, restaurants would start cushioning themselves from breakages by passing on the burden to their guests.

In most restaurants, all employees, from the toilet attendant to the dishwasher and the maitre d', get a percentage of the pickings determined by the 'service points' they accumulate over the month. This doesn't help the customer because the points system essentially rewards waiters who 'upsell', or talk their guests into buying more expensive dishes or alcoholic beverages. It also doesn't help the restaurant managements because it leads to avoidable heartburn down the line, for no one is happy with what he or she gets at the end of the month. And then there's the eternal question: Shouldn't employers be investing in the happiness of their staff to get the best service out of them, rather than making them pay for their night pick-ups and drops?

Five-star hotels generally don't levy a service charge, though some do it for banquets. It was The Oberoi Group that first initiated this practice, despite union resistance, because, as the chain's corporate chef, Soumya Goswami, puts it, "When you come to a five-star hotel, you expect the best service. How can we charge you for it?"

Restaurant chains backed by major PE funds have taken the middle path of paying each employee a fixed service charge, irrespective of the monthly collection, which the management then keeps entirely for itself. That may save them the hassle of dealing with employee heartburn, but customers have to keep coughing up the 10 per cent service charge. My pitch is that we go back to the days when tipping was discretionary. Only then will restaurants fulfil their statutory obligations, and their staff will go the extra mile to ensure a memorable experience each time we go for one. There's nothing like the prospect of a good tip to motivate restaurant staff to make the customer really feel like a king.