Check out of a luxury Hotel and find a “discretionary 5% service charge on lodging” might be a novelty for many; unexpected for most, but something that might become a trend everywhere. At the end of the day, if we’re already used to being asked to add up to 17% service charge to our meal when we go out dining, the same could apply to hotel stays, right? Let’s see…
SERVICE CHARGES VS RESORT FEES
In 1997, some US resorts started adding a mandatory resort fee, ranging from a few dollars to over 100$/room/night. The official reason given to guests is that paying that fee is what gives them the right to have wifi, parking, use of the swimming pool, and other possible facilities that the resort might offer. Regardless of the fact the guest might or might not have made use of those facilities. Sometimes, without even having such facilities, as it happens with some city hotels.
In reality, the service charge was a way for hotels to be able to undercut rates offered by OTAs. That way, in the eyes of the guest when searching online, the Hotel web rates are lower than the ones offered by third party websites. However, upon departure, the guests might be faced with a steep increase of the final invoice.
CONTROVERSY
There has been certain controversy as, depending in the state, is not an entirely legal policy. The many websites guiding guests on how to avoid paying those fees testify it is not a measure pleasing everyone. However, the use of the resort fee has somehow become widespread in the US, reaching many resorts in the Caribbean, and also certain destinations in Canada.
SERVICE CHARGES & TIPS
Ultimately, most guests end up paying those resort fees, which go directly into the Hotel or Resort. Which is very different to the service charge….now.
Only in late 2021 was there a law passed in the UK banning business owners to keep part or all of the service charge that was intended to be for the staff.
In this case, the service charge is usually applied in restaurants, and is meant to be a way to “push” customers to leave a tip for the staff, both waiting and kitchen. It is discretionary, so as a customer one can refuse to pay it, but it is common practice to leave it on the bill and pay it.
One could dispute whether the average 12.5% is the tip customers would leave if not “invited” to add it, but that’s a different story. In any case, it’s been common practice for many years, and before the service charges were established, it was also common to tip when having a meal, as it is with taxis, hair salons, etc…
SERVICE CHARGE FOR THE STAY AND THE CURRENT SCENARIO
So if it’s common for patrons to leave tips in most service-industry-related transactions, it should come as no surprise that hotels are adding that service charge now.
Again, discretionary. And in this case, at around 5%.
Hotels are facing a challenging situation at the moment when it comes to finding staff. Wages continue to be lower than in other industries, and “the great resign” (as coined in the US, but widespread globally) has meant Hotels everywhere struggle to fill their teams.
As a US hotel CEO highlighted, tips -or the prospect of a service charge- could be what keeps staff tied to a certain role or company.
Besides the lack of talent, hotels also feel the inflation on prices from suppliers, and directly or indirectly, they have no other option than to pass them to clients.
Increasing the rates so that they can increase wages, and therefore have full teams could be the most direct option. But that would penalize them online and make them less attractive for prospect guests looking for the best rates.
Applying that service charge keeps the rates at bay, and has a positive impact on staff retention and motivation.
But should the guest be the one paying for it? Either way, they would, eventually.
So, as we got used to having a discretionary service charge added to the restaurant bill, we will, in the end, get accustomed to seeing -and paying- hotel service charges.
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