What Are Restaurant Service Charges For?

Here’s a familiar restaurant scene: Dinner is over, the plates have been cleared and the server discreetly drops the bill on the table. But there’s something less familiar at the bottom of the check — a service charge, tacked on with little explanation.

Questions immediately swirl. Is this a tip? Does it go to the wait staff? If not, should I leave more money? Is it rude if I ask my server any of this?

“You shouldn’t have to ask,” said Chloe Lynn Oxley, a project manager in Washington, D.C., who dines out frequently and — like many diners — is often bewildered by the fees. “It should be very clear what the service charge is, and what it is for.”

One thing is clear: The charges are meant to help shore up a restaurant industry that has long run on slim profit margins and now faces a host of challenges, including inflation, labor shortages and an expectation — or mandate, in rising minimum wages — that workers get better wages and benefits.

To deal with all of this, an increasing number of restaurants across the country, from fast-food chains to fine-dining destinations, have in recent years added service charges of up to 22 percent, and sometimes more.

For restaurateurs, these service charges offer some flexibility. Gratuities are tightly regulated by law and can be distributed only to tipped workers. A service charge belongs to the employer, who can choose how to spend it, said Brian Pollock, an employment lawyer in Miami.

Despite that difference, many diners still conflate service charges with tips, he said. “It is a fundamental misunderstanding that nobody clarifies.”

From restaurant to restaurant, the charges are imposed in such a variety of ways — the amount added to the check, how the restaurant spends it, how all of that is communicated to diners and staff — that many customers and employees are frustrated.

The confusion often begins with the word “service,” which leads some diners to associate the charge with the quality of their experience.

“Even if the service was bad, we have to pay the service charge,” said Shaniah Alexander, a flight attendant who lives in Romulus, Mich. She questioned why it isn’t included in the pricing of dishes.

Many restaurant owners view the service charge with ambivalence, as a necessary but imperfect fix for an industry that looks increasingly unsustainable.

“If we didn’t have the service charge, we might be out of business in a couple weeks,” said Graham Painter, who last year added a 22 percent charge at Street to Kitchen, a Thai restaurant in Houston that he runs with his wife, the chef Benchawan Jabthong Painter.

The couple found themselves in a bind. They wanted to pay their workers more, but believed that customers wouldn’t accept higher menu prices, even as food costs rise. They didn’t want to continue depending on tipping, which they think is unreliable and inequitable, as nontipped workers are prohibited by law to share in the money.

But even after adding the service charge, which the staff explains to any guest who asks, the restaurant still encourages guests to tip.

“Restaurants have unrealistically priced food items, and in the history of restaurants, the labor are the people who have shouldered those unrealistic costs,” Mr. Painter said. The service charge is a solution, he said, and additional tipping “gets these servers closer to that livable wage.”

Service charges are not new. But they became more common as the pandemic harrowed restaurant budgets and made people both inside and outside the industry acutely aware of the hardships of the work. Diners tipped more generously, and some restaurants imposed “Covid surcharges” and other fees.

Even at restaurants that have long charged service fees, like the famed Chicago bar the Aviary, some employees struggle to understand how the money meaningfully affects their wages.

“A service fee is not bad on paper,” said Kamila Bikbulatova, who was a runner and server at the Aviary from 2019 to 2020. But she said her manager never told her how the restaurant’s 20 percent service charge, which has been in place since 2010, was used. She said she also never made more than $16.50 an hour, including tips.

“I don’t think service fees can be successful unless employees are the ones that have control over their own money,” Ms. Bikbulatova said.

A spokesman for the Aviary said its service charge is treated simply as revenue, and can be used to pay employees and for any other costs of doing business. He said staff members are told the differences between the tipping and service-charge models and have access to an F.A.Q. page about the charge.

When Hollis Silverman opened the Duck & the Peach, a California- and New England-inspired restaurant in Washington, D.C., in late 2020, she saw the service charge as an opportunity to bring transparency to her business.

The 22 percent the restaurant adds to every check goes directly toward wages — which range from about $18 to $45 an hour, Ms. Silverman said. Guests are not expected to leave a tip, but if they do, it is distributed among the hourly staff based on time worked. (Less than 10 percent of diners leave a tip, she said.)

All of this is communicated to customers at various points: on the restaurant’s website, on menus and by each server. Employees receive a detailed breakdown of their wage sources every other week. Ms. Silverman said she also pays half of the health care costs for full-time employees.

“This is the best we can do with what we have until someone wants to change federal labor laws,” she said.

Many restaurateurs view service charges as a way to eliminate tipping, which they see as discriminatory.

Josie Ramstad said that before she added a 20 percent service charge a year ago at Kaosamai Thai, her family’s restaurant in Seattle, diners were tipping an average of only 12 to 15 percent.

“People never felt obligated to tip 20 percent,” she said. “And I am a firm believer that it is because a lot of the time, English is not their server’s first language.”

Service charges are common in Seattle, Ms. Ramstad said, but “the kind of backlash we received for implementing it was unreal.” People accused her of foisting the restaurant’s labor costs onto diners — a complaint she found almost comical. Who else would pay? “We are a business,” she said. “All of our money comes from customers.”

Why not avoid tipping and service charges altogether, and simply raise menu prices? Several owners offered the same answer: People don’t want to pay more for food.

There would have to be a broader shift in how Americans perceive dining out for customers to accept higher prices, said Evan Leichtling, the owner of Off Alley, a Seattle restaurant with a 20 percent service charge. “Going out to a restaurant is a luxury,” he said. “It is not meant to be something you do every day.”

The unwillingness to pay more intensifies at restaurants serving non-Western food, said Christina Nguyen, the chef and a co-owner of Hai Hai, a Southeast Asian restaurant in Minneapolis with a 20 percent service charge. “With our style of food, there is sadly a ceiling there,” she said.

Ms. Nguyen said the service charge has gone over well with her employees, who make between $18 and $42 an hour. She gave them the option to switch back to a tip model, and they voted to keep the 20 percent service charge.

Tipping, however, is deeply entrenched in American dining culture, said Ann Hsing, the chief operating officer of Pasjoli in Santa Monica, Calif., which has a 15 percent service charge and no tip line on receipts.

Even the renowned New York restaurateur Danny Meyer couldn’t make a no-tipping system work at his restaurants. In 2015, he introduced a much-heralded “hospitality included” policy that eliminated tipping in favor of a consistent hourly wage, while raising prices for dishes by 15 to 20 percent.

He abandoned the policy in 2020, citing the unpredictability of the pandemic and his desire not to deny workers any added form of compensation. In five years under the policy, many of his employees had left the company for jobs that offered tips.

Some restaurant workers said they still relied on tips despite working at a business with a service charge.

At a Waffle House in Dayton, Ohio, where Elexia Evergreen worked intermittently from 2018 until this year, the 20 percent charge on to-go orders was evenly divided between the employee handling the order and the company. (A Waffle House spokeswoman said the 10 percent that goes to the company is spent on to-go supplies.)

Ms. Evergreen always hoped for tips “because 10 percent isn’t really enough,” she said. She made about $16 an hour before tips, and fewer than one-third of her customers tipped.

Octavio Collado, who was a server at Kiki on the River, a Greek restaurant in Miami, from 2017 to 2022, would ask diners to tip in cash on top of the service charge because he said his manager wouldn’t tell him how the restaurant spent the money.

A spokeswoman for Kiki on the River declined to comment on Mr. Collado’s experience, and said the restaurant was “fully compliant with both federal and Florida law as it relates to service charges and tips.”

Service charges don’t reward workers the way tips do, Mr. Collado said.

“Let’s say you are a strong server, you are great with people, you are a great salesman,” he said. “They hire their niece and nephew to work there, and they are making the same money as you with no experience.”

While some diners across the country said they liked the ability to judge the service themselves through tips, others said they preferred a service charge because of the message it sends.

“It tells me that they actually care about their employees and they care about their well-being,” said Justin Karr, a financial analyst in Denver.

And while many restaurants established service charges in response to the uncertainty of the current moment, most owners said they plan to keep them for the foreseeable future.

“If the conversation arises on a national level, or a Seattle level, where people said, ‘We are sick of the complication of a service charge, we want to incorporate it into prices and raise prices by 20 percent and remove the service charge from the bill,’” said Mr. Leichtling, of Off Alley, “we would switch to that model happily.”

He hopes that change can happen. “I don’t know if it ever will,” he said.

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