Michelin-Starred Shoreditch Restaurant Scraps Service Charge Ahead of Reopening

Michelin-starred Shoreditch restaurant Leroy has announced that it will follow Oklava and Hill & Szrok in scrapping service charges from the menu when it reopens after the coronavirus lockdown this coming Friday.

The restaurant, which posted the news to Instagram, said that the fluctuation in restaurant receipts because of the discretionary service charge — it generated more money when the restaurant was busier — meant that insecurity was passed onto staff. “It always seemed unfair to us that the vagaries of our business and any mishaps along the way should fall on our staff,” Leroy said.

Leroy’s owners confirmed that when the restaurant reopens on Friday evening, there will be no service charge added to customers’ bills. “We believe it is an idea whose time has come and that more restaurants across the UK will make the case for it,” they wrote.

The case for the discretionary service — often used by employers to top-up the wages of both front and back-of-house staff — is not just predicated on its equal distribution, it is also a charge that does not incur the 20 percent value added tax (VAT) rate, which is applied to the rest of the meal. However, any benefits of the service charge convention are outweighed by what Leroy regard as the negative impact of characterising the value of service as optional. “We believe in the dignity of this profession and there was always something undignified about the service charge. It suggests that service is something that is not integral to the experience,” they wrote.

Since yesterday’s report on the decision of Oklava and Hill & Szrok to scrap service charges, restaurateurs have contacted Eater to emphasise the challenges of implementing such a significant change at a time when restaurants face multiple challenges in their recovery from the coronavirus crisis. One central London operator said that while they had never had a service charge, they believed that restaurants would have to increase prices by around 20 percent to “compensate for extra taxes, VAT, and National Insurance [contributions].” They wondered whether customers may spend less as a result of the extra charge to their bill, or at least a perception that the meal was more expensive. They also questioned whether scrapping service charges at an “especially tough time” was feasible — when restaurants could be doing 50 percent less trade for the foreseeable future.

One of the reasons the service charge has been so widely adopted was that it was a “very tax efficient way of boosting wages and keeping menu prices down” even though it meant insecurity on those wages. Not until the pandemic — and the implications of those additional contributions to earnings being excluded from the furlough scheme — had the insecurity of those wages been understood has having such practical and dramatic consequences. Many workers received as little as a third of their normal monthly take-home through the government’s job retention scheme, which was publicised as covering 80 percent of wages.

Another restaurateur contacted Eater to say that their Michelin-starred restaurant had scrapped service charges some time ago. They said that there were “obvious financial implications for both employer and employee (and guest)” but that doing so meant a “a much fairer, transparent system for all.”

“With a change to guest numbers in our industry in the short to medium term and restaurants tronc takings diminished, it all hopefully coalesces in a positive, honest and meaningful way,” they added.

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