Definition of Service and its Types in a Business Context

As a consumer, you will often receive service charges, admin fees, or other fees added at the end of the purchase or payment. Typically, service charges are collected to pay for services related to the primary product or service purchased. Many industries charge service fees including restaurants, banking, travel and tourism.

Have you ever questioned the need to give tips to waiters if the receipt also states the nominal service charge? In the following article, let's see what is meant by service charge and also its types. This can also answer the need to give tips when making transactions.

What is Service Charge?

Service charges or service fees are fees collected to pay for services related to the main product or service purchased. Fees are usually added at the time of transaction. Many industries charge service fees, including restaurants, banking, even travel and tourism.

When collected, these fees may cover services provided to consumers, or may include administrative or processing fees. Service fees are paid directly to the company. They differ from tips, which are paid to employees who provide services. Paying the tip and the amount is completely up to the customer.

Types of Service Charges

After knowing the meaning, it will be easier if you also know the various service charges charged in certain industries. The following are the types of service fees categorized based on each field:

1. Hospitality Industry

The average hotel and restaurant charges a service fee that is a percentage of the total bill, often in lieu of a tip. Admin fees charged for ordering room service at a hotel or delivery fees applied to the bill for a large group dining at a restaurant are examples of service charges.

2. Banking Industry

The banking industry charges a number of different service fees, which are usually set at a standard, flat rate. When you open a checking or savings account at a bank, the bank charges a monthly maintenance fee. This fee is debited from the account at the end of the month. Banks also charge service fees for using other banks' ATMs, or when customers make interbank transfers.

3. Travel Industry

Airlines charge a number of service fees including fees for baggage that is too large or too heavy (overbaggage), ticket change or cancellation fees, advance seat selection fees, and fees for in-flight experiences such as WiFi, food, drinks, and entertainment.

Some airports also still apply airport repair fees or departure fees. These fees are service fees that apply to passengers departing and transiting at the airport. It is levied by the government or airport management company, and the proceeds are usually intended to fund major airport improvements or expansion of airport services.

Depending on the location, airport upgrade costs are included in the cost of the passenger's airfare, in which case, the airline will pass the costs on to the appropriate agent. However, in some locations, the fee must be paid at the point of departure.

4. Home Property

Renting or leasing certain types of residential property may be subject to service charges in the monthly rental fee. For example, renters of apartment units may be required to pay apartment fees on top of the rent. The apartment fee is a service fee for general cleaning and maintenance of the building.

Online rental platforms that connect renters with property owners such as Airbnb have service fees to cover payment costs associated with reservations. Service charges are usually calculated as a percentage of the subtotal and apply to both renters and owners.

Difference between Service Charge and Tip

There is a big difference between service charges and tips. The service charge amount is charged to the customer as an automatic gratuity added to the bill. Things that are classified as service charges include banquet costs, hotel room costs, or cruise ship travel package costs.

On the other hand, tips are discretionary or can be removed at one's/individual's discretion. If consumers want to leave a tip, that is their choice. Tips can be in cash or given in kind. A merchant or business owner cannot force a consumer to leave a tip. Additionally, consumers have the right to determine who gets the tip.

The amount of the service charge is usually stated by the company, business owner, restaurant, bank or airline on the transaction note with the buyer. That way, consumers or customers can find out the amount or percentage that has been determined as a form of accountability from the seller of goods or services.

Service charges will go directly to the company for maintenance or company service development needs. This is of course different from tips which will be given in a certain amount and given directly to the person serving the customer or consumer, not the company.