Hotels, restaurants workers demand pay hike after service charge ban

“This is my second battle in two years,” says Ram Pandey, a waiter and father of three girls. The first was the pandemic, which hit the Indian restaurant business badly. The industry shrank 53 per cent in FY21, according to a report by the National Restaurant Association of India (NRAI). And now it is the Central Consumer Protection Authority’s (CCPA’s) decision to bar hotels and restaurants from levying service charge from July 4 that has dealt another blow to people like him, he says.

The CCPA later clarified that the guidelines are not advisory in nature and are fully enforceable by law and asked district collectors to take cognizance of complaints and initiate “appropriate” action. As many as 85 consumers have complained through the National Consumer Helpline till Friday.

Pandey, who works at Rao Hotel in Rewari, Haryana, now plans to increase the number of hours he works to cover for the income he says he is bound to lose out on. He says he makes another Rs 4,000-8,000 over and above his monthly salary of Rs 12,000 because of service charge.

He is not alone. With rising cost of living and salary cuts, levying service charges has helped survive thousands others like Pandey in the hospitality sector. Without it many of them fear their take-home salary will decline by at least 50 per cent. Sanjay Srivastav, chief chef Rodeo Restaurants, Connaught Place, New Delhi, says “We used to get more than 100 percent in service charges and tips above my Rs 25,000 thousand salary", adding, "the service charge is the only reason that I’m in this industry."

“Without service charges, we earn less than a construction worker or a human scavenger, '' says Rajesh Singh, a toilet cleaning staff, in a three-star hotel in New Delhi. Though collecting service charge is banned, getting a tip or gratuity at the consumer’s discretion is still allowed under the new guidelines.  

S M Shervani, owner, Rodeo says, "with this move the government is encouraging people to use cash for tips, along with forgoing its revenue through GST on the service charge." 

The July 4 guidelines under Section 18 (2) (I) of the Consumer Protection Act, 2019 are in addition to the Centre’s 2017 guidelines which prohibit the levy of service charges. 

“Because of this additional income, we were able to survive in this sector, which does not promise a minimum wage. However, demands of hikes meet deaf ears,” says Singh. 

Hotel associations observe this move as an attack on the already beleaguered hospitality and food sectors. Pradeep Shetty, Joint Honorary Secretary, Federation of Hotel and Restaurant Associations of India (FHRAI), while denouncing the guidelines said: “After examining, we plan to approach the ministry regarding these guidelines,” adding “there will be some short-term casualty but the industry will find a way to manage its employees.” 

Piyush Goyal, minister of consumer affairs, food, and public distribution ahead of the new guidelines had said, “restaurants are free to increase wages and can charge any rate for food and service to customers.”

However, industry experts say that while restaurants will increase the food prices there is no certainty on it going to staff as it will be a part of the owner’s revenue. “Increasing price to compensate for service charge doesn’t necessarily mean that it will be passed on to employees,” says Shervani, who has asked his employees to challenge the guideline in the Labour Court and approach the labour ministry.  

For Pawan Kumar, a chef, the worry is greater. “If customers give tips to waiters a large portion of it will be kept by waiters and will not be equally shared among all staff. It is us who will suffer the most, owners will not share their profits,” says Kumar, as he ponders on switching roles from a chef staff to a waiter. 

"Post-pandemic workforce is deserting the industry and this decision on service charge has made the hospitality sector far less attractive,” says Shetty, adding “service charge over and above their salary motivated people to work harder. This move is going to create hiring problems for us.” In 2020, the Indian tourism sector accounted for 39 million jobs -- 8 per cent of the total employment in the country. 

According to FHRAI estimates, in FY21, the Indian hotel industry has taken a hit of Rs 1.30 lakh crore ($17.81 billion) in revenue due to the impact of the Covid-19 pandemic. In 2019, the contribution of travel & tourism to GDP was 6.8 per cent of the total economy, Rs  13.68 lakh crore ($194.30 billion).

Not just current employees but new workers are also finding the industry less attractive to work in. According to FHRAI, out of the 19,000 students who appeared for JEE exam in 2021-22 as against 30,000 appearing every year, around 7,500 students had enrolled for counselling against 13,400 seats available for the B.Sc. in Hospitality & Hotel Administration programme under NCHMCT.

The NRAI has reiterated that there is no illegality in levying service charges, while dubbing it a universally accepted trade practice. “The move is against the labour-friendly stance of the government," it said. 

"It is a charge collected for the benefit of the staff and there is nothing illegal in it,” says Gurbaxish Singh Kohli, Vice President, FHRAI. “No hospitality establishment coaxes a consumer to pay it if for any reason they choose not to,” he adds. However, Shetty says only over 20 per cent of restaurants and hotels used to charge service charges.  

Even though the industry dubs it unfair, customers hail the move. Abhishek Sherawat, an epicurean, feels that taking a service charge without permission from the customers was arbitrary and illegal. “Only after completing the meal, one is in a position to decide whether or not to pay a tip and how much. Grahak toh jaga hi tha, sarkar ab jagi hai (Consumer was awake and aware, it is the government which woke up now.”

At a glance

Guidelines for eateries

• No automatic addition to the bill
• No other name to collect such a charge
• Must inform customers it is voluntary/optional
• No curb on services based on such a charge
• Can’t be added to the food bill and levied on the total amount 

Rights of customers

• Ask the eatery to remove it from the bill
• Lodge complaint with the National Consumer Helpline no (1915)
• File complaint with Consumer Commission or district collector