Here’s a familiar restaurant scene: dinner is over, the plates are cleared, and the server discreetly drops the bill on the table. But there’s something less well-known at the bottom of the check: a service charge, pasted with little explanation.
Questions immediately swirl around. 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 this?
“You shouldn’t be asking,” says Chloe Lynn Oxley, a project manager in Washington, D.C., who eats out frequently and — like many diners — is often baffled by the cost. “It must be very clear what the service costs are and what they are for.”
One thing is clear: The charges are designed to help prop up a restaurant industry that has long lived on slim profit margins and now faces a myriad of challenges, including inflation, labor shortages, and an expectation — or mandate, in rising minimum wages. – that workers receive better wages and benefits.
To cope with all this, an increasing number of restaurants across the country, from fast-food chains to gourmet destinations, have added service charges of up to 22 percent, and sometimes more, in recent years.
For restaurateurs, this service charge offers some flexibility. Tips are strictly regulated by law and can only be distributed to employees with a tip. Service charges belong to the employer, who can choose how to spend them, said Brian Pollock, an employment lawyer in Miami.
Despite that difference, many guests still confuse service charges with tips, he said. “It’s a fundamental misunderstanding that no one is clearing up.”
From restaurant to restaurant, costs are imposed in so many different 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 become frustrated.
The confusion often starts with the word “service,” leading 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,” says Shaniah Alexander, a flight attendant who lives in Romulus, Michigan. She wondered why it is not included in the price of dishes.
Many restaurant owners view the service charge with ambivalence, as a necessary but imperfect solution to an industry that seems increasingly unsustainable.
“If we didn’t have the service charge, we could be out of business in a matter of weeks,” said Graham Painter, who last year added a 22 percent surcharge to Street to Kitchen, a Thai restaurant in Houston that he runs with his wife, the chef Benchawan Jabthong Painter.
The pair ran into trouble. They wanted to pay their employees more, but believed that customers would not accept higher menu prices, even if food costs increased. They did not want to remain dependent on tipping, which they say is unreliable and unfair since it is illegal for non-tipped employees to share in the money.
But even after adding the service charge, which the staff explains to every guest who asks, the restaurant still encourages guests to tip.
“Restaurants have unrealistically priced food items, and in the history of restaurants, the workers are the people who have borne these unrealistic costs,” Mr Painter said. The service charge is a solution, he said, and extra tips “bring these servers closer to that living wage.”
Service charges are not new. But they became more common as the pandemic spiked restaurant budgets and made people both inside and outside the industry acutely aware of the rigors of the job. Diners tipped more and some restaurants imposed “Covid surcharges” and other surcharges.
Even at restaurants that have long included a service charge, such as famed Chicago bar the Aviary, some employees struggle to understand how the money meaningfully impacts their wages.
“Service charges aren’t bad on paper,” says 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, in effect since 2010, was used. She also said she never made more than $16.50 an hour, including tips.
“I don’t think service charges can be successful unless employees have control over their own money,” Ms. Bikbulatova said.
A spokesman for the Aviary said the service fee is treated simply as revenue and can be used to pay employees and for all other costs of doing business. He said employees are told the differences between the tip and service charge models and have access to an FAQ page about charges.
When Hollis Silverman opened 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 each check goes directly to 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 will be split among the hourly staff based on time worked. (Less than 10 percent of guests tip, she said.)
All this is communicated to the customers at various points: on the restaurant’s website, on the menus and by each server. Employees receive a detailed overview of their wage sources every other week. Ms Silverman said she also pays half of 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 a service charge as a way to eliminate tipping, which they consider discriminatory.
Josie Ramstad said that before she charged a 20 percent service charge a year ago at Kaosamai Thai, her family’s Seattle restaurant, diners tipped only 12 to 15 percent on average.
“People never felt obligated to tip 20 percent,” she said. “And I firmly believe it’s because English is often not their server’s first language.”
Service charges are common in Seattle, Ms. Ramstad said, but “the kind of backlash we got for implementing it was unreal.” People accused her of forcing the restaurant’s labor costs on guests—a complaint she found almost comical. Who else would pay? “We are a company,” she said. “All our money comes from customers.”
Why not avoid tips and service charges altogether and just raise menu prices? Several owners offered the same answer: people don’t want to pay more for food.
There should be a broader shift in how Americans eat out so that customers accept higher prices, said Evan Leichtling, the owner of Off Alley, a Seattle restaurant with a 20 percent service charge. “Eating out is a luxury,” he says. “You’re not supposed to do this every day.”
Reluctance to pay more is on the rise at restaurants serving non-Western fare, says Christina Nguyen, the chef and co-owner of Hai Hai, a Southeast Asian restaurant in Minneapolis with a 20 percent service charge. “With our style of eating there is unfortunately a ceiling,” she said.
Ms. Nguyen said the service costs went down well with her employees, who earn between $18 and $42 an hour. She gave them the option to switch back to a tipping model and they voted to keep the 20 percent service charge.
However, tipping is deeply entrenched in American food culture, says Ann Hsing, the chief operating officer of Pasjoli in Santa Monica, California, which charges a 15 percent service charge and does not list tips on receipts.
Even renowned New York restaurateur Danny Meyer couldn’t get a tip-free system to work in his restaurants. In 2015, he introduced a much-lauded “hospitality inclusive” policy that eliminated tips in favor of a consistent hourly wage, while increasing food prices by 15 to 20 percent.
He dropped the policy in 2020, citing the unpredictability of the pandemic and his desire not to deny workers an additional form of compensation. In five years under the policy, many of its employees had left the company for tips-paying jobs.
Some restaurant workers said they still rely on tips, despite working for a company with a service charge.
At a Waffle House in Dayton, Ohio, where Elexia Evergreen worked intermittently from 2018 to this year, the 20 percent cost for takeout orders was split evenly between the employee fulfilling the order and the company. (A spokeswoman for Waffle House said the 10 percent that goes to the company will be spent on on-the-go supplies.)
Ms. Evergreen always hoped for tips “because 10 percent isn’t really enough,” she said. She was making about $16 an hour before tips, and less than a third of her clients tipped.
Octavio Collado, who was a waiter at Kiki on the River, a Greek restaurant in Miami, from 2017 to 2022, asked diners for a tip 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, saying the restaurant was “fully compliant with both federal and Florida laws regarding service charges and tips.”
Service charges don’t reward employees the way tips do, Mr. Collado said.
“Let’s say you’re a strong server, you’re great with people, you’re a great salesperson,” he said. “They hire their niece and nephew to work there, and they make the same money as you with no experience.”
While some guests across the country said they liked the ability to rate service for themselves through tips, others said they preferred a service charge because of the message it sends.
“It tells me they really care about their employees and their well-being,” said Justin Karr, a financial analyst in Denver.
And while many restaurants have added a service charge in response to the uncertainty of the current moment, most owners said they plan to keep it for the foreseeable future.
“If the conversation arises at the national level or the Seattle level, where people say, ‘We’re tired of the complication of service charges, we want to factor it into prices and raise prices by 20 percent and take service charges off the bill,'” said Mr. Leichtling of Off Alley, “we’d like to move to that model.”
He hopes that changes can come. “I don’t know if it will ever happen,” he said.
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