Is your Banquet Service Charge a ‘Gratuity’ or an ‘Administrative Charge’ or a combination of the two?
Ok admit it, for a long time now we have all felt a tad uncomfortable knowing that for many of us, our hotels have been collecting a service charge on catering and not distributing the entire amount to our banquet service staff in the way that our clients are expecting…Yes it feels wrong but we tend to just pretend we don’t know about it right?!For those of you unaware of what I am referring to, let me explain…Typically catering charges will accrue a ‘Service Charge’ for all Food and Beverage.Some hotels will also apply this charge to Audio Visual and Room Rental charges.Many years ago this amount used to be 15% but over the past decade or so it has crept up significantly - the going rate for service charges in the United States seems to be somewhere between 18-22%.
Traditionally, the entire service charge on a banquet check was considered to be the ‘gratuity’ and was distributed amongst the banquet wait-staff.However as hotels have increased the service charges, most have not increased the allotment that is distributed to the banquet team as their gratuity.This in and of itself does not seem like such a big deal.Surely a hotel should be allowed to increase service fees at its own choice – and whether it chooses to pass on increased profits to its employees in the form of raises is also a decision for an employer to make.
But the area that makes many of us nervous is the knowledge that our customers are concluding that the service charge goes to the wait-staff in its entirety.Ask any of your meeting planners, brides or any other clients what they are expecting will happen with the 22% Service Charge they are paying and I bet you that almost all of them will tell you that they are expecting that it will go to the banquet servers as a gratuity. Heck, ask the rest of your catering and sales colleagues and most of them probably don’t know that the entire 22% isn’t going to the banquet servers!So the issue here is with disclosure.Our clients have a right to know that the ‘Service Charge’ that they are paying is only part gratuity.They deserve to know what percentage gratuity they are actually paying to the servers.If your customers know that they are only paying a 15% gratuity to the banquet servers then they can elect to pay more if they feel the service warranted it.
For this reason, I personally believe that BEO’s should all state what the breakdown is for the service charge.It’s just a simple change required in the header of a BEO, and possibly also in the verbiage used in contracts.This has also been the advice recently given to a lot of large hotel groups recently but legal counsel – but I am no lawyer, I just believe it is ethical to give full disclosure…And for those of you who think that this is something that you can just brush off, I suggest you do a Google search for ‘Banquet Service Charge Lawsuits’ and take a look at the court cases that are springing up all over the country regarding this very issue.I am not going to name names, but there are some pretty famous hotels in New York, Boston and Hawaii currently facing the threat of class action lawsuits over this very issue.