Business

What Are Restaurant Service Charges For?

This is a familiar restaurant scene. The dinner is over, the plates are cleared and the server discreetly places the bill on the table. But at the bottom of the check, there’s something less familiar. It’s a service charge and barely explained.

Doubts immediately swirl. is this a hint? Does it go to the waitstaff? If not, should I leave more money? Is it rude to ask a server something like this?

“You don’t have to ask,” said Chloe Lynn Oxley, a project manager in Washington, DC. He eats out frequently and, like many diners, is often baffled by charges. “We need to clarify what the service charge is and what it is for.”

One thing is clear, this lawsuit is meant to help the restaurant industry, which has long had low profit margins and is now facing many challenges, including inflation, labor shortages, and social expectations and obligations. That is the purpose. minimum wage increase — Ensuring workers get better wages and benefits.

To combat this, an increasing number of restaurants, from fast-food chains to high-end restaurants, have added service charges of up to 22 percent, and in some cases more, across the country in recent years.

For restaurateurs, these service charges offer some flexibility.Tipping is strictly regulated by law It can only be distributed to workers who receive tips. Miami employment attorney Brian Pollock says the service fee belongs to the employer, who can choose how to spend it.

Despite this difference, many diners still confuse service charges with tips, he said. “This is a fundamental misunderstanding that no one has clarified.”

Many customers and employees are dissatisfied because each restaurant imposes fees in different ways, such as how much is added to the check, how it is used in the restaurant, and how all of this is communicated to customers and staff. is holding

The confusion often begins with the word “service,” leading some diners to associate the price with the quality of the experience.

“Even if the service is bad, you have to pay the service charge,” said Shania Alexander, a flight attendant in Romulus, Michigan, who wondered why the service charge wasn’t included in the price of the food. rice field.

Many restaurant owners have an ambivalent view of service charges as a necessary but imperfect solution to an increasingly unsustainable industry.

“Without service fees, you could be out of business in a matter of weeks,” said Graham Painter, who added a 22% commission last year. From street to kitchenis a Thai restaurant in Houston that he and his wife, Chef Benchawan Jabthorn Painter, run.

The couple were in trouble. They wanted to pay their employees more, but believed customers wouldn’t accept higher menu prices, even if food costs increased. They didn’t want to continue relying on tipping, believing it to be unreliable and unfair, as the law prohibits sharing money with untipped workers.

However, even after adding the service charge, the restaurant still encourages guests to tip, even though the staff explain it to guests who ask.

“Restaurants charge unrealistic prices for food, and in the history of restaurants, it’s the workers who have borne that unrealistic cost,” Painter said. A service charge is the solution, and adding a tip “brings these servers closer to a liveable wage,” he said.

Service charges are nothing new. But as the pandemic hit restaurant budgets and made people in and out of the industry realize just how hard the job was, the practice became more common. Diners tipped more generously, and some restaurants imposed “coronavirus surcharges” and other charges.

Even restaurants that have long charged service charges, like the famous Chicago bar Aviarysome employees struggle to see what meaningful impact money has on their wages.

“Service charges aren’t bad on paper,” said Kamila Vikbratova, who was a runner and waiter at Aviary from 2019 to 2020. But her manager, she said, never told her why the restaurant was charging a 20% service charge. It has been in use since 2010. She also said she never made more than $16.50 an hour, including tip.

“I don’t think service charges will work unless employees can manage their own money,” Vikbratva said.

A spokeswoman for Eviary said the service fee will be treated as pure income and can be used to pay employees and other business costs. Staff are briefed on the difference between tipping and service charge models, and have access to a pricing FAQ page, he said.

When Hollis Silverman opened duck and peacha California- and New-England-inspired restaurant in Washington, D.C., at the end of 2020, she saw service charges as an opportunity to bring transparency to her business.

Silberman said 22 percent of the restaurant’s check addition goes directly to wages, which range from about $18 to $45 an hour. Guests are not expected to leave a tip, but if they do, it will be distributed among hourly staff based on hours worked. (Less than 10% of customers leave a tip.)

All of this is communicated to the customer at various points. on the restaurant website, per menu and each server. Employees receive a detailed breakdown of their pay sources every other week. Ms. Silberman said she also pays half of the medical costs for full-time employees.

“This is all we can do with what we have until someone tries to change federal labor law,” she said.

Many restaurateurs see service charges as a way to eliminate tips, which they consider discriminatory.

Josie Ramstad said before adding a 20 percent service charge a year ago. Khao Samai ThaiAt her family’s restaurant in Seattle, guests averaged a tip of just 12 to 15 percent.

“People never felt obligated to tip 20 percent,” she says. “And I strongly believe it’s because English is not the primary language of the server in many cases.”

Ramstad said service charges are common in Seattle, but “the backlash I received for introducing it was unrealistic.” People accused her of pushing her restaurant’s labor costs onto her customers, but she found her complaint almost ludicrous. Who else would pay? “We are a business,” she said. “All our money comes from our customers.”

Why not ditch the tip or service charge altogether and simply increase the prices on your menu? Several owners gave the same answer. “People don’t want to pay more for food.”

For customers to accept higher prices, a broader shift in the way Americans view dining out will be necessary, said owner Evan Reichtling. Alley, restaurants in Seattle with a 20 percent service charge. “Going to restaurants is a luxury,” he said. “It’s not something you do every day.”

Restaurants serving non-Western cuisine are increasingly reluctant to pay more, said chef and co-owner Christina Nguyen. hi hi, South East Asian restaurants in Minneapolis charge a 20 percent service charge. “Unfortunately, our eating style has its limits,” she said.

Ms. Nguyen said her employees are paid between $18 and $42 an hour, and that the service charge is more than enough. She gave them the option to revert to the tipping model and they voted to keep the 20 percent service charge.

But chips are deeply rooted in American dining culture, said Chief Operating Officer Ang Singh. Pajoli In Santa Monica, CA, there is a 15 percent service charge and there is no tip section on receipts.

Even famous New York restaurateur Danny Meyer couldn’t get the no-tip system to work in his restaurant. In 2015, he introduced the much-talked-about “hospitality included” policy, eliminating tips in favor of consistent hourly wages and increasing food prices by 15-20 percent.

He abandoned this policy in 2020. Pandemic unpredictability and his desire not to deny workers any additional compensation. During his five years under this policy, many of his employees took jobs offering tips and left the company.

Some restaurant workers said they still rely on tips, even though they work in restaurants that charge service fees.

and waffle house In Dayton, Ohio, where Elexia Evergreen worked intermittently from 2018 to this year, a 20 percent commission on takeout orders was split between the employees handling the orders and the company. (A Waffle House spokesperson said 10% of the payout goes to takeout items.)

Ms. Evergreen said she always expected a tip because “10 percent really isn’t enough.” By the time she tipped, she was making about $16 an hour, and the tipped customers were less than a third of hers.

Octavio Collado was our serverMore kiki on the riverA Greek restaurant in Miami required diners to tip in cash on top of a service charge from 2017 to 2022 after managers failed to tell the restaurant how to spend money.

A spokeswoman for Kiki on the River declined to comment on Mr. Corrado’s experience, saying the restaurant “fully complies with both federal and Florida law regarding service charges and tips.”

Corrado said service charges don’t reward workers the way tips do.

“Let’s say you’re a good waiter, a good social worker, and a good salesman,” he said. “They hire nieces and nephews to work there and make the same money as you, who have no experience.”

Some diners across the country said they liked how tipping allowed them to make their own decisions about service, while others said they preferred the service charge because it gets the message across.

“You can tell they really care about their employees and they care about their well-being,” said Justin Carr, a financial analyst in Denver.

Many restaurants have also set service charges in response to the current uncertainty, but most owners said they plan to keep them for the time being.

“If there is a discussion at the national or Seattle level that says, ‘I’m sick of the complexity of service charges, I want to incorporate the service charge into the price and raise it by 20% and eliminate the service charge,’ Mr. Reichtling of Off Alley said, “We would be happy to switch to that model.”

He wants change to happen. “I don’t know if it will,” he said.

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