What is the grammatical error in the following sentence:- The owner as well as his servants is honest.
The controversy here is about the singular form of the verb is, namely, wheather one must change it to the plural form are. The plural form is definitely acceptable here; the question is whether the singular form might be acceptable, too.
Considering the is version: on the one hand, it seems there are completely analogous sentences, with verbs in their singular forms, that are definitely acceptable (see below, esp.  ii a.). On the other hand, as Jason observed, in the case of your sentence, the is version sounds a bit off. I don't know for sure what the reason is, but I have a guess: the fact that servants is in the plural. I'll return to that after providing a bit of background.
Here is the relevant section of CGEL (pp. 1316-1317):
■ As well as
The literal use of as well as is seen in comparisons of equality like He played a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ ͟h͟e͟'͟d͟ ͟e͟v͟e͟r͟ ͟d͟o͟n͟e͟. Here well is an adverb heading the underlined phrase, an adjunct of manner. There is also an idiomatic use meaning approximately "and, in addition to", illustrated in:
 i a. She [means what she says] [a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ says what she means].
b. [Abstraction] [a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ impressionism] were Russian inventions.
c. [Both increasing ewe liveweight,] [a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ liveweightat mating,] influence
ovulation rate and lambing performance.
ii a. [Beauty] [a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ love] is redemptive.
b. He will have, [a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ the TV stations,] [a book publishing empire].
c. J met her father, [whom] she had invited along [a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ her college friends].
d. She [has experience in management], [a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ being an actor of talent].
In [i] as well as behaves like the coordinator and. In [ia] it links two finite VPs [verb phrases], a property characteristic of coordinators: cf. property (c) of §2.1 ['Wide range of categories that can be coordinated']. Note in this connection that while She plays t͟h͟e͟ ͟p͟i͟a͟n͟o͟ as well as t͟h͟e͟ ͟v͟i͟o͟l͟i͟n͟ (with paired NPs [noun phrases]) is ambiguous between a literal meaning ("as proficiently") and the idiomatic one ("and"), She p͟l͟a͟y͟s͟ ͟t͟h͟e͟ ͟p͟i͟a͟n͟o͟ as well as s͟i͟n͟g͟s͟ ͟l͟i͟e͟d͟e͟r͟ (with paired finite VPs) has only the idiomatic meaning. In [ib] the form were indicates that the subject NP is plural, just like abstraction and impressionism. And in [ic] we have not only such plural agreement, but also a correlative pairing of both with as well as instead of the usual and.
In [70ii], by contrast, as well as behaves markedly differently from a coordinator. In [iia] the 3rd person singular verb-form is indicates that this time the subject is singular: is agrees with beauty, so that as well as love is treated syntactically as an adjunct, not a coordinate. In [iib] as well as the TV stations precedes a book publishing empire, making it clearly an adjunct. And could not appear in the position as well as has here: cf. property (d) of §2.1 ['Impossibility of fronting an expanded coordinate': A coordinator and its coordinate cannot be moved to front position. Note here the contrast between the coordinator but and the preposition although: He joined the club b͟u͟t͟ he had little spare time is OK; *B͟u͟t͟ he had little spare time he joined the club is not. In contrast, both of the following subordinating constructions are OK: He joined the club a͟l͟t͟h͟o͟u͟g͟h͟ he had little spare time; A͟l͟t͟h͟o͟u͟g͟h͟ he had little spare time he joined the club This restriction reflects the fact that the coordinates are of equal status]. In [iic] relativisation has applied to just one of the bracketed constituents, contrary to coordinator property (e) ['Across the board application of syntactic processes': A special consequence of the requirement that coordinates be syntactically alike is that certain syntactic processes must apply across the board, i.e. to each one of the coordinates]. And in [iid] the bracketed constituents are syntactically unlike, the first being a finite VP, the second a gerund-participial, contrary to coordinator property (b) ['Coordinates must be syntactically alike']. Note that order reversal is possible in [iid] (As well as being an actor of talent, she has experience of management), but not in [ia] (*As well as says what she means, she means what she says).
We must conclude that idiomatic as well as can be construed syntactically in two ways, introducing an element that is either coordinate (as in [70i]) or subordinate (as in [ii]). In the former case, we take it to have been reanalysed as a compound coordinator. In the latter case there has been no such syntactic reanalysis, and here as well as does not form a constituent. This is evident from the fact that as well can occur on its own: compare Beauty is redemptive and love is as well. In [iia], then, the second as is a preposition taking the NP love as its complement, and the whole PP [preposition phrase] as love is an indirect complement in the AdvP [adverb phrase] as well as love. Similarly for the other examples in [ii].
As a coordinator, as well as is restricted to subclausal coordination: She plays the piano as well as she sings lieder, for example, has only the literal comparative interpretation. Even as a coordination, 'X as well as Y' differs from 'X and Y' in that the second term is backgrounded: Y often expresses information that is discourse-old, i.e. familiar from the prior discourse.
I should say that I have some misgivings about CGEL's argument for the claim that as well as is not a constituent in  ii; see my discussion with the user deadrat in the comments to his answer here.
However, regardless of what is ultimately the correct grammatical analysis of the sentences in  ii, it is clear that both of the following are acceptable (note the were in i b. and is in ii a.):
 i b. [Abstraction] [a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ impressionism] were Russian inventions.
ii a. [Beauty] [a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ love] is redemptive.
Back to your sentence
So, by analogy with  i b. and ii a., one would think that both of the following are acceptable too:
 a. The owner a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ his servants are honest.
b. ?The owner a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ his servants is honest.
And yet, in the case of , the version b. sounds off, at least to my ear (as well as that of Jason). My guess is that this is because servants is in the plural, and the proximity of the plural noun to the verb makes it harder to swallow the verb being in the singular (despite the fact that the subject is the owner). Let's try it out:
 The owner a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ his servant is honest.
To my ear, if  is pronounced with the right prosody, e.g. with well sort of emphasized so that the meaning is His servant is not the only one who is honest; the owner is honest, too, then  is acceptable.
Finally, as Jason suggested, one can also make as well as his servants into a supplement (see CGEL, pp. 1350-1362) by offseting it with commas (or in some other way):
 a. The owner, a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ his servants, is honest.
b. The owner—a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ his servants—is honest.
b. The owner (a͟s͟ ͟w͟e͟l͟l͟ ͟a͟s͟ his servants) is honest.
There are errors in both construction and subject-verb agreement. As I see it, there are two essential ways of correctly phrasing this:
- The owner, as well as his servants, is honest.
Here, I have added commas. That makes as well as his servants a non-restrictive phrase. It's something that adds information but which is not required. (I could have used parentheses instead of commas.) With this, grammar applies to the sentence as if it weren't there. In other words, the owner is honest.
But while technically correct, it is still awkward.
- The owner as well as his servants are honest.
Here, I have changed is to are. There is now a plural subject (owner as well as his servants) and a plural verb (are).
But it, too, is awkward.
Normally, you want to phrase a sentence so that it sounds correct both with and without a non-restrictive phrase, and without having to struggle to identify and validate subjects with verbs.
In this case, the use of as well as is used in an uncommon way. I would rephrase it in an unambiguous way:
The owner and his servants are honest.
Both the owner and his servants are honest.
The owner, like his servants, is honest.
The owner is honest. So are his servants.