NLSIU research paper reveals a majority of consumers do not know what service charge is
It was earlier this year that the Union government made the payment of service charge in hotels and restaurants “discretionary” or “voluntary.” But has it put an end to the consumer’s confusion? No.
A research paper on the concept of service charge, prepared by students of the National Law School of India University (NLSIU), Bangalore, has revealed that a majority of consumers actually thought the service charge they were paying was levied by the government. In fact, many did not even know what service charge — which they were paying apart from what they were charged for the food — was.
For their paper ‘Critique of service charges in hotels and restaurants’, NLSIU students Sujoy Sarkar and Swaran Naik Ramavath approached 350 people in Bengaluru, Pune, New Delhi and Kolkata. The respondents — 323 in all — were from backgrounds such as business, engineering and law, while some others were students, vendors and workers in hotels.
They were asked five questions: What do you mean by service charge? Is service charge levied by the government? Is service charge legal? If not, is it a good idea to make it legal? What is an ideal percentage of levying service charge? How can we spread awareness about service charge?
Only 134 of the 323 people knew what service charge meant. However, these 134 people were practising law or business or were part of eatery houses or hotels. The people who did not know about service charge were mostly from the suburbs, vendors or people engaged in manufacturing business, the paper revealed. As many as 185 of them thought service charge is levied by the government.
For the third question, in the absence of legislation that specifies if service charge is legal or illegal, 226 people said service charge is legal. On the other hand, 83 respondents said it is illegal and 14 said its position is not clear, which, according to the researchers, is the right answer. “The biggest reason why people feel service charges are legal is because it is still prevalent and nobody raises questions about its credibility,” the paper stated. At the same time, 258 of the respondents wanted service charge to range from 5% to 10%.
Where does the Centre’s direction stand?
With the ambiguity over service charge remaining, where does it leave the Centre’s direction on making the charge voluntary? “The decision of the government maybe a huge set-off because it is assigning the consumer with a greater bargaining power and this may be unfair on the part of hotel employees. But even after the direction, the consumer may not be in one of the most comfortable positions to walk away without paying service charge,” said the paper.
This is because such charges are billed. “If it is voluntary as it ought to be, why should it be billed at all in the first place? Why should the consumer be embarrassed in full public view to grovel before the billing clerk and explain to him whether she was satisfied with the services or not and how much of the service charge billed she considers reasonable?” the paper sought to know.
Ashish Kothare, member, managing committee of the National Restaurant Association of India, said not much had changed since the directive, though a few people did mention coming across reports in newspapers. “If someone contests paying the charge, then we are liable to look into it. I didn’t have to fight with anybody,” he said, and added that if service charge was legalised, hotel managements would have to be honest enough to ensure it reaches the staff.
Making service charges legal
In the backdrop of a lack of clarity concerning the collection of service charge, the NLSIU paper favours legalising it, citing examples of countries such as the United Kingdom and the United States of America.
Apart from a uniform rate for service charge increasing the bargaining power for consumers, who can get a strong ground to argue against any violation of their rights, the researches also believe that it will end the “discrimination” in tipping based on the appearance of the eatery rather than quality of service.
