The Restaurant and Bar Association of Nepal announced on Monday that the 10 percent service charge added to the meal bill had been made optional, drawing smiles from customers and frowns from restaurant workers. The association said the service charge would be left to the discretion of diners and no longer be mandatory.

While restaurants patrons are happy that their bills will be slashed by 10 percent, union leaders said the decision could be challenged in court as it would mean a substantial reduction in the earnings of workers. Hotels and restaurants have been levying a service charge on food and beverage bills since 2007 which is added to the salary of their employees.

“Obviously, in many countries, the service charge on food and beverage bills that hotels and restaurants levy on consumers is not backed by law, and in some cases, has even been deemed illegal. But Nepal’s labour law allows the collection of a service charge,” said Madhav Pandey, president of the CPN (Maoist Centre) affiliated All Nepal Hotel, Casino and Restaurant Workers Union.

The Restaurant and Bar Association said that it was up to the customers to pay service charge, and that it would be gradually removed at all member establishments in Kathmandu, Pokhara and Chitwan. “We decided to scrap the service charge as it has been inflating food bills. Most of the time, consumers are dissatisfied with the 10 percent service charge,” said Pramod Kumar Jaiswal, president of the association. “The decision will not impact the service delivery of  restaurants.”

The mandatory service charge system came into force on January 1, 2007. Since then, hotel and restaurant customers have been paying 24.3 percent extra on the menu price as 10 percent compulsory service charge, 13 percent value added tax (VAT) and 1.3 percent service tax. The VAT and service tax go to the government.

Last June, Hotel Association Nepal and the Nepal Tourism and Hotel Labourers Association ended a two-year dispute over the sharing of service charges raised from consumers. They agreed that hotel employees would get 72 percent, the hotel management would get 23 percent, Hotel Association Nepal would get 2 percent and the three trade unions affiliated to the Nepali Congress, the CPN-UML and the CPN (Maoist Centre) would get 1 percent each. The Restaurant and Bar Association stayed away from the negotiations.

When asked whether restaurant workers were happy with the decision, Jaiswal said that the amount received through service charge would be adjusted in their salaries by their employers. “Employees will not lose out on the benefit they have been receiving,” he claimed. Any dispute or controversy raised by labour unions regarding the decision would be resolved through discussion, he added.

An executive member of Hotel Association Nepal said it would be difficult, even impossible in some cases, to pay employees extra to compensate for the loss of service charge. There are thousands of restaurants across the country that have not been able to pay even the minimum monthly salary of Rs13,450 set by the government, he added.  

“Some restaurants doing good business may increase the salaries of their employees, but many others cannot do so,” he said.

“Everyone knows that the service charge added to the bill cannot be made mandatory, but in Nepal it has been given legal status.”

Union leader Pandey said that the biggest impact would be on restaurant employees. US fast food restaurant chain KFC has been paying Rs25,000 monthly on average to each employee from the service charge it collects from customers. KFC has 200 employees. Bakery Café pays Rs10,000 per month to each employee from the service charge. It has nearly 175 employees. The Road House Café pays about Rs12,000 monthly to its employees from the service charge.

“Even fast food outlets have been paying an average of Rs3,000 per month to each employee,” said Pandey. “It’s difficult for restaurant owners to scrap the service charge and increase their pay by the same amount.” As per an agreement signed in 2007, employees get 68 percent, while the management gets 32 percent of the service charge.

The service charge was made mandatory in 2007 in a bid to narrow the differences between hotel management and employees when their dispute was at its peak.