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The Greatest Theft - Service Charge

I have seen some creative accounting practices by Finance but service charge is something I could never digest. It is a stomach-churning practice and I rather die than agree with it no matter from which angle they are trying to convince me.


NOTE: My experience is from hotels (and some restaurants) in the GCC and I don't have information on how it works in other parts of the world.


Yesterday my colleague tagged me in a post where an international hotel company posted "Competitive Service Charge" under their list of benefits in the job advertisement. Well, if you know how we allocate service charges it all makes sense.


Hotels only pay out 10-20% of the total service charge to their staff.


Call me naive, gullible or whatever you want but morally speaking service charges must be paid out to employees 100%. This is the greatest theft employers do and there is little regulation around it. Hotels and restaurants add the remaining 80-20% of the service charge to their top-line revenue and some allocate it to other areas on their P&L. They are not even ashamed of admitting that they spend this money to cover the breakage cost, staff training, or HR costs. Then they have the cheek telling you that they invest in you.


If you want to take this money away at least spend it on health insurance for the staff so there is no class system where the boss with the 100K salary has the best insurance in the world and the waiter with the 2000K salary cannot even go to see the dentist. if you allocate that money to that I would say "You know what, it still should go 100% to the employees but at least it is now in a different way."


But no, we use that money as revenue and to cover the expenses, what a rip-off!


There are other problems with this because guests often don't tip because of the service charge rightly so. But tips and service charges are two different things. Some restaurants go as far as to ban tipping further ripping their staff off. They make service charges mandatory and pay a fraction of that to the employees and ban tipping that would go 100% to them. Have we completely lost our moral compass? Read here. 


Each time I eat out and I see the service charge added to my bill I think of it as me tipping the owner. Now you know how things work so if you are staying in hotels or eating in restaurants please give cash tips to the employees because that is more likely to go to them (well there are dodgy practices there too but let me not go there now) and understand that only 10-20% of the service charge you pay will end on their payslip.


Competitive service charges should not be a thing, they should be paid out 100% to the service staff including the line managers. Directors and above should not get SC or tips but an annual bonus. This is how you make the system a little more fair. Remember, compensation is a massive element to employee motivation and it is supported by a number of scientific theories. If they feel that their input does not meet the output (compensation) they will adjust their contribution accordingly. You as an employer will lose one way or another if you are playing with areas that come under human motivation.


PS: There is so much money for everything we just need to learn to look at things differently. For the big hotel companies, how about you start restructuring your management contracts with your employees in mind and start specifying conditions around their welfare?



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