The bar owners who ban the service charge

PUBLISHED : Sunday, 18 April, 2010, 12:00am
UPDATED : Sunday, 18 April, 2010, 12:00am

It's one of the biggest rip-offs in Hong Kong. The 10 per cent 'service charge' in most upmarket bars and restaurants which ends up not in the pockets of the staff, but in their bosses' bank accounts.

And the charge applies not only to bills settled by cash but also those paid for by credit card. In Hong Kong, it's quite normal for one customer to put their credit card behind the bar and allow their friends to rack up drinks and food on the one account, sometimes for hours on end. By the end of the night, that huge bill comes with a sizeable 10 per cent service charge - one most staff never see.

Credit card commission of 3 or 4 per cent is also deducted from the service charge in many establishments, while other places use 10 per cent of the credit card tips to cover their staff's Mandatory Provident Fund.

Companies that are struggling to make ends meet claim they have no other option but to keep the charge, while other businesses that are successful see it as another way of improving their profit margin.

This misleading service charge has seen the proprietors of two SoHo venues - the Globe on Graham Street and Posto Pubblico on Elgin Street - banish the 10 per cent service charge from their premises.

Toby Cooper, director of the Globe, prefers instead to leave tipping up to the customer's discretion and then share out the tips between staff at the end of each week.

'Nearly every single bar or restaurant in Central is taking the 10 per cent service charge for themselves. You'd be hard pushed to find anyone paying any tips to their staff,' Cooper said. 'The service charge is just open to interpretation from individual businesses. It should be given at the customer's discretion for good service. It shouldn't be a mandatory figure that's added on - one that is taken by the company and not given for service. It's makes me angry that others are doing it as it's not fair to their staff.'

There seems to be an unwritten law in the industry that discussion of the service charge is taboo.

While there is no law enforcing the payment of the service charge, as soon as you order something from a menu stating that a 10 per cent service charge applies, you've entered into a legally binding agreement.

One restaurant manager in Central admitted that the 10 per cent doesn't go to his staff but it is just how things are.

'I know for a fact it's the same everywhere else,' he said.

'Service would probably be better if the charge was going straight to staff waiting tables, but everyone else is charging it so there's nothing you can do about it. We are all in competition with each other after all.'

Todd Darling, co-creator of Posto Pubblico, believes it is this mentality that holds the industry back in Hong Kong. He says that 10 per cent is a lot of money each month and that it keeps some businesses afloat.

'At its core it's nothing but a cheap marketing trick to get customers,' Darling said. 'A lot of these businesses wouldn't survive if they didn't take the service charge for themselves.'

Darling said that if a bar or restaurant made HK$1 million a month, the 10 per cent service charge would see them pocket an extra HK$100,000 a month.

'If they didn't take the 10 per cent you have to wonder would they be in business at all. It's one of the reasons why you see a general lack of quality and competition in the marketplace here. All it does is line an unscrupulous restaurateur's pocket.'

A spokesman for the Inland Revenue Department said there was no tax law covering the charge but it had to be taxed as profit, while the government's catering department said the question of whether the service charge was relevant was a matter for restaurants and customers to decide.

One waitress who works in a SoHo restaurant said: 'Customers are always asking me whether the 10 per cent goes to staff or not. Tourists just think it does so they don't bother to leave tips. It's really unfair to the staff but there is nothing we can do about it. No one knows exactly how much service charge has been taken each night anyway.'

The Eclipse Group, who own eight restaurants and bars around Hong Kong, including McSorley's in SoHo, said that they did not directly pay the 10 per cent service charge to their staff. Instead they used it to cover staff benefits such as medical issues, paying for uniforms, cleaning uniforms, meals and staff days out.

But this is an argument that others don't agree with.

'To start with, these are all things that staff should get automatically as it's part of basic employment law anyway. The staff deserve to be paid the tips they've earned, full stop,' Cooper said. 'If I want to make more money I'll just put my prices up. I'm not going to try to make money off my staff, I want a happy workforce.'

Easy money

The service charge gives a bar or restaurant an extra HK$100,000 if it makes in one month, in HK dollars: $1m