Why do restaurants have service charge?

The first thing to note when talking about service charge in restaurants in the UK, is that service charge is and must be discretionary.

No one can force you to pay service charge in the UK.

If someone is forcing you to pay service or tips, any payment you make must be treated like a sale, and is therefore VATable (if the business is VAT registered). Speak to the restaurant owner if you feel any service charge is being forced upon you by their employees.

Service charge, or service fee, is meant to predominantly go to team members and employees, and especially to those who contributed to you having such a great experience.

Service charge cannot be used to 'top' someone up to minimum wage. Any service charge paid out should be on top of any minimum wage.

Back to the main question; why do restaurants have service charge?

Restaurant use service charge to help pay their employees and staff good wages. These 'pots' of collected service charge are normally distributed through something called a 'tronc scheme'. A restaurant owner should not get involved in the distribution of service charge, and should really only get involved when setting up a 'tronc scheme' with the 'troncmaster' - i.e. the person responsible for managing the tronc.

A well run tronc scheme can benefit the team, rewarding those who work hardest and contribute the most.

A restaurant owner may decide to deduct certain fees from the 'pot' before distributing the service charge, say for example they may decide to deduct the fees they have been charged by their credit card provider in exchange for taking the service charge. Once these fees have been deducted, the restaurant may then distribute the remainder via a 'points scheme' whereby all staff are awarded points based on their job role and contribution. In any given payroll period, these points are tallied up with hours worked (or holiday hours if a team member is away) and then the 'pot' is then divided up accordingly.

Why do restaurants have service charge, if they then decide to keep it all?

Although there is not yet enough legislation to stop a restaurant from taking all of the service and keeping it for themselves, this sort of practice is highly frowned upon. Needless to say they may have a hard time finding anyone willing to work for them! Minimum wage is exactly that - a minimum!