‘It put everyone in a weird position’: Our waitress said a 20% service fee was added to cover benefits and health insurance, but that it was not a tip. Is this normal?
Dear Moneyist,
I went to brunch last weekend and, when the server handed us the bill, she said a 20% service fee was added to cover her benefits and health insurance, but that it was not a tip.
I am absolutely supportive of paying restaurant and waitstaff a living wage and they deserve to have benefits. But I wish that the restaurant would have just baked it into their prices.
No one would have flinched if our meal was just $3 more, but the way it was broken out was just weird and struck us the wrong way. It put everyone in a weird position, especially the server, who had to explain that to us.
Is this a trend in restaurants now?
Baffled Customer
Dear Baffled,
More restaurants are charging service fee, but they are doing so in lieu of tips. While other restaurants are adding a low service fee — often up to 10% of the bill — to pay for what they say are higher health costs. However, adding 20% to the bill risks robbing servers of their tips — if customers are expected to tip on top of that.
It’s a legally precarious area. Under some state laws, a service charge should be considered a gratuity unless it’s completely “unreasonable” to assume the fee is for services rendered. That’s probably why your waitress was instructed by the manager to point out the charge, and tell you that it was to cover benefits.
Restaurant workers have had to deal with low and unsteady wages during the pandemic, unpredictable and long hours and often few benefits, a situation that has been exacerbated by two years of recurring waves of COVID-19 that closed many restaurants, and left many more struggling to survive.
The Larkin Hoffman law firm says such restaurant service charges can often be ambiguous: “Saying that a service charge is ‘mandatory’ under state law is not accurate when the state does not require businesses to add the service charge,” it says. Importantly, this can also impact a server’s actual tips.
“The increased use of service fees has generated significant discussion among customers and service-industry groups,” the firm adds. “Some opponents say they would rather see increased prices with postings explaining the increase or touting the benefits the increases provide.”
Service staff are among the least well-paid workers. Nearly one-third of U.S workers earn “poverty-level wages” of less than $15 an hour, according to recent data analysis from the global poverty charity Oxfam, which found that 51.9 million U.S. workers make less than $15 an hour, or $31,200 a year.
The federal minimum wage in the U.S. is currently $7.25 an hour and was last increased in 2009, although several states pay more than that and others require employers to pay tipped employees a minimum cash wage above the minimum cash wage required under the federal Fair Labor Standards Act.
Some restaurants have eliminated tips altogether, but included a 20% service charge that goes directly to the workers to level the playing field in a time when some customers are under tipping and/or behaving in a way that makes wait staff feel uncomfortable or even unsafe. But that is not what happened in your case.
The restaurant industry has made efforts in recent times to support and protect their workers. Last year, One Fair Wage, an advocacy group for service staff, released a report that said over a two-week period, 1,600 restaurants across 41 states raised wages to pay the full minimum wage — with tips on top of that.
Those restaurants paid an average wage of about $13.50 an hour, the report said, but the vast majority of restaurants in those states paid a sub-minimum wage of $5 or less. “The pandemic exacerbated the economic instability and vulnerability of tipped workers receiving a sub-minimum wage,” the report added.
Food costs are going up as inflation hits a 40-year high, and it’s a difficult time for restaurants trying to win back both workers and customers. Whatever you decide to do with the service charge — whether you dispute it or pay it — make sure you tip the server in cash. Ultimately, they are the ones who end up paying the price.
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