How much is the 12.5% service charge added to your restaurant bill?
I’m constantly faced with this question when eating out in London – not only is the ‘optional’ 12.5% automatically added to the bill, but sometimes I’m even asked to add a ‘staff’ tip on top. I could fuss and try to get it removed, but that would involve a very awkward conversation with the manager. So I tend to do what any self-respecting Brit would do… pay and then complain to my partner.
Although this is purely anecdotal, I feel that over the past few years there has been a pronounced increase in the number of restaurants adding a service charge directly, rather than leaving it up to customers. When I first moved to London six years ago I was told that service was usually only added to the bill at the fanciest restaurants or for large parties – now they seem pop up almost anywhere you go.
It’s not just the restaurants either. Some London hotels have recently started charging 3-5% “discretionary” on top of room rates. There also seems to be no consensus on the appropriate percentage – 12.5% seems to be the norm, but it could be as low as 10% or as high as 14% depending on the establishment.
But while these fees are always advertised as “optional” or “discretionary,” in many cases they are not an additional bonus, but a substantial part of a server’s base salary. Hill and Szrok, a London butcher and wine bar, tore up the practice in a vitriolic Instagram post after the first Covid lockdown.
“Standard practice in most restaurants (including, until recently, ours) is to pay all staff on a base rate, usually no more than minimum wage, and then top up with tips to get there. to something that people can actually survive on. ‘
It’s a system they describe, not without reason, as “unfair at best, and total bullshit at worst.”
Things took a turn for the worse during the pandemic. When the furlough scheme was rolled out, it only covered basic salaries, excluding “optional” service charges, leaving many hospitality workers receiving only 33-50% of their normal salary, instead of the 80% everyone was getting.
From the customer’s perspective, the main issue here is transparency. Admittedly, this is not unique to the UK. If you’ve ever traveled to the United States, you’re familiar with the concept of “before tax and tip” pricing, where the prices displayed exclude both taxes and services. The goal here is pretty obvious, if rather dishonest – to coax people into an establishment with prices that seem much lower than they actually are.
In general, this is less of an issue here in the UK, where Strong consumer protection laws mean businesses must display all-inclusive prices. Except, that is, in restaurants. Since service charges are technically optional, restaurants don’t have to display all-inclusive prices and can simply add 12.5% at the end of your meal – even though they clearly aren’t. “optional”, but that they are an integral part of the business model of the industry. And because it’s almost always about ‘disengagement’ rather than ‘participation’, the average Brit’s deep dislike of awkwardness means most people pay (and then, like me, lament after).
Rather than pulling the wool over customers’ eyes, restaurants should advertise truly all-inclusive prices. Things seem to be looking up here, at least in London, with several restaurants now getting rid of extra charges and raising menu prices to reflect the cost of service. This is commendable and should become the norm rather than the exception. Alternatively, restaurants could go back to the old system where customers tipped at their own discretion for what they thought the service was worth – but does anyone really want to recreate American tipping culture in the UK? -United ?
You could discuss that the current pricing model is sufficiently transparent, in that restaurants always indicate the percentage charge at the bottom of the menu (and a customer can theoretically choose not to pay). However, I suspect that the vast majority of people hang on to the overall price without mentally adding another eighth to their bill. Indeed, if restaurants display prices as they do, it is precisely because most people hate doing mental calculations.
None of this is meant to detract from what is an extremely difficult industry – room and kitchen staff work incredibly long and demanding hours, while managers operate on notoriously thin margins. But I can’t help but think that the offer to customers would be much more appealing if we removed the fiction of the “optional” service charge.
More restaurants should follow Hill and Szrok’s lead and build their costs into the price of each menu item. It’s a more transparent way of doing business – and hopefully it should lead to fewer raised eyebrows when the bill arrives.
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The columns are the author’s own opinion and do not necessarily reflect the views of CapX.