What is a Service Charge?

There are many definitions for the term service charge, and a number of heated opinions on when such charges are justifiable. The standard definition is that it is a fee for some service rendered that is in addition to the amount already paid for a particular product. These charges are added to all types of services. For instance, a cable company might assess fees for providing customer service to those people who are already paying customers. Airlines may add a variety of service fees and could even charge to book a ticket; hotels may do the same and add a booking fee.

Service charges might be very noticeable to people who use discount travel sites in which, to access discounts, they must pay a fee. Ticket sellers for concerts and other events also typically add service charges to the price of the ticket. Another common situation in which one is applied is when people pay their bills over the phone with a customer service representative or if they use a variety of pay services to get their bills paid on time.

People may be most familiar with the service charge as it relates to banking. Banks may charge a monthly service fee for customers, to use an ATM that doesn’t belong to the bank, or if people overdraw their account. The last is likely to be very noticeable, since banks may charge quite a bit of money to cover the overdraft.

In fact, one charge that banks had to quickly abandon centered on the issue of talking to tellers. In the early 2000s, some banks began to charge a teller fee, but customers quickly closed their accounts, feeling that this service was a right and not appropriate to charge. Banks quickly got the message that this was one fee they could not charge, though other businesses, like utility companies, have instituted similar fees.

Another type of service charge has many people confused. This is when people at restaurants are told to pay a set percentage of the bill as a service fee in lieu of a tip. Many waiters and waitresses can point to the immediate problems with this scenario, as any fee is not a tip and belongs to the restaurant owner and not to the waiter or waitress. This means the owner can distribute the fee in any manner he sees fit or can keep all of it.

An additional example of this is when people pay a delivery fee for their pizza. They might want to bear in mind that the person making that delivery is not likely to get a tip out of the fee. Adding these charges often distresses those people who depend on tips for a living, since the fee may reduce their income if a proprietor is injudicious in distributing them.