Email Us:
June 23, 2023

At the Indian-American sports bar Pijja Palace in Los Angeles, there’s a note written by owner Avish Naran on the menu right beneath a selection of chicken wings: This is a reminder that we have 19% SERVICE CHARGE. I put this under the wings section, so you can fly your ass out of here if you don’t like it. 

It’s a playfully brash message—and just one example of the way restaurants are making sure their staff gets paid and their businesses make money, without relying on customers to leave a tip. Instead, restaurateurs are building fees into the cost of your meal. 

Doing business this way is not entirely new. Some upscale tasting menu restaurants like The French Laundry in Yountville, California, and Alinea in Chicago have been factoring service and food costs into the price of their dishes for years, as have some more casual restaurants throughout California, like the mini-chain Crab Hut in San Diego. But these fee-based models have only gotten more widespread in recent years, at restaurants like Middle Brow Bungalow and Thattu in Chicago, and Pizzeria Toro in Durham, North Carolina. You’ve probably run into some of these fees by now. They come printed at the bottom of your check with often-ambiguous names like “dine-in fee,” “service charge,” “auto-gratuity,” “health care fee,” or “benefits surcharge.” 

Unsurprisingly, service charges have become a source of public outcry everywhere from Oakland to Washington, DC, with some consumers calling them deceptive and even tacky. A new generation of restaurateurs, though, see these fees as a critical way to go against the old industry labor model of subsidizing restaurant worker pay through the so-called tip credit. That system allows restaurants in many states to pay their staff a subminimum wage as low as $2.90 per hour, with the remainder left to the discretion of diners. Only seven states, including California, don’t enforce a tipped minimum, with tipped workers making a standard minimum wage. Washington, DC is in the midst of phasing out the tip credit through gradual subminimum wage hikes, the first of which is coming in May and will raise the subminimum wage from $5.35 to $6 per hour. 

Yet even in places where the subminimum wage has been scrapped, you might still see surcharges on checks, as restaurants try to remain profitable and entice employees through the expectation of steady income. At a time when restaurateurs are struggling to hire and retain staff, the promise of higher, consistent pay has made these fees much more common. The array of fees—and the varying names they go by—can be confusing for diners and, of course, make eating out feel pricier than ever. 

To help you understand where these charges go (and why), we’ve broken down the two broad camps into which added restaurant fees tend to fall. 

If a restaurant is “tip-free” or “tip-included,” there’s usually an 18–22% tip factored into the price of each dish. Additional tipping is (probably) not expected.

Of all the fees that have showed up on restaurant menus in the past few years, tip-included menu pricing is perhaps the oldest and most tried—though with historically mixed success. In 2015, restaurateur Danny Meyer sparked a trend when he eliminated gratuity across eleven restaurants in his Union Square Hospitality Group (USHG). Restaurants like The Walrus & the Carpenter in Seattle, and Craft in New York followed suit, but ultimately walked the practice back, citing lost business and trouble retaining waitstaff. In 2020, USHG also reverted to a tipping model. Despite these past difficulties, restaurateurs are still determined to make this model work. Plenty of long-standing and new restaurants, including Miss Kim in Ann Arbor, Michigan; and Bloomington, Indiana brewpub Switchyard Brewing Co., have adopted the practice. 

At The Cormorant, a neighborhood restaurant that opened in January in the affluent town of Newburyport, Massachusetts, there’s a placard at every table that reads “Wait, no tipping?” Here, the $16 price tag for a pepper Jack smash burger with fried jalapeños and fries includes labor, cost of goods and operating costs, plus what would’ve been a 20% tip. 

By absorbing tipping into the overall menu price and reinvesting part of what would be their cut, The Cormorant’s owners aim to pay it forward to all eight staff members—whether they work part- or full-time. Everyone gets the same rate, commensurate with experience and hours worked, translating to pay of $18 to $25 per hour. “We’re not basing our finances or accounting on whether customers will leave a tip or not,” says Katie Taricani-Hickey, one of the restaurant’s two chef-owners. “We think [this model] is the future.”

The longtime chefs considered opening a French bistro for their debut solo restaurant, but ultimately decided on the universally beloved burger—and not just because of its widespread appeal. The pair figured that with lower-cost items like burgers and fries, tip-included dining would induce less sticker shock, and ease people into a perhaps unfamiliar business model. “It takes this idea [of tip-included dining] that might be hard for some people to swallow and puts it behind a plate that is really accessible, nostalgic comfort food,” says Taricani-Hickey. 

So far, the bet has paid off. Diners keep coming back—and people tip around 10% on top of the included charges, to boot. 

If there’s an “employee benefits” or “pay equity” fee on your check, tipping is probably still expected. These fees are usually 3–5%, but sometimes go higher.

Dallas small-plates restaurant Rye and sibling cocktail bar Apothecary were review-bombed in March in reaction to the optional 3% benefits surcharge the group added to checks at the start of the year. Headlines and news reports captured reviewers’ feelings that they’d been “deceived,” with a since deleted review calling waitstaff “servants,” according to Business Insider

Yet despite the internet outrage, the restaurants are doing fine—better, even, than before they instituted the policy in January. Tips have remained steady, the business is experiencing double-digit growth compared to this time last year, and job applications from qualified applicants are up, according to creative director and owner Tanner Agar. For staff working at least 36 hours per week, the fee helps fund benefits, including up to half of health insurance premiums, parental and bereavement leave, up to 15 days of paid time off, and professional development like sponsored entrance to competitions. The 3% isn’t enough to fully fund the benefits program, so Walkabout covers the difference.

You’ll see charges similar to the ones at Rye and Apothecary at restaurants like Republique (factoring in “competitive industry compensation”) and A.O.C. in Los Angeles, and Coppa in Boston. Some of these charges are optional, meaning diners can request to have them removed from their check, like at Republique. At others, like Bolognese-inspired restaurant Rossoblu in LA, the fee is mandatory.

“We were afraid people would be upset and stop coming, or that too many people would opt out and make the program financially unsustainable or penalize servers,” says Agar, “but none of that happened.” Not one customer has opted out of the charge, including those who have voiced their displeasure—whether through a one-star Google review or, more often, in a handwritten note on their check. 

While around 3–5% may be standard for these pre-tip fees, some restaurants go much higher. Che Fico in San Francisco has taken some heat since implementing a 10% “dine-in” fee in 2021—on top of which customers are expected to tip. “It helps us pay a living wage to all of our employees, provide professional benefits, as well as use the best local products,” reads an explanation on the restaurant’s website. In a city as expensive as San Francisco, “restaurants have to get creative,” especially if they want to be profitable, co-owner Matt Brewer told the San Francisco Standard in September 2022. A tip added on top of the service fee can be the enticing difference-maker for employees trying to make life work in expensive cities. And for restaurant owners having trouble retaining staff, the extra cash and comprehensive benefits can provide an incentive to would-be employees.

When Naran debuted Pijja Palace in LA’s Silverlake neighborhood last year, he implemented a 19% service charge to boost worker pay without increasing hourly rates beyond what he could afford for his team of 40-plus people. Pijja Palace’s charge is not optional for diners. It’s listed on the bill above a field for tipping. And while tipping is optional, it is still encouraged and gets distributed among front-of-house staff—with a small percentage of the service fee being split between cooks and the management team. 

For restaurants, it’s a matter of finding a fee structure that works for them and their employees, then sticking to it, Naran says. And even if you find some of these fees confusing, or grumble at having to pay more on top of an already expensive evening out, Naran says it’s a simple equation: “However a restaurant decides to structure its pay, you as the diner should trust what they’re doing. It’s insane to think you can go into dinner and walk away understanding the intricacies of running a business.”

Correction, 4/27/23: A previous version of this article misidentified a restaurant’s service fee model.

Read More

See more food service industry news, reviews and products at FSX, the Food Service Exchange, the commercial food service industry’s go-to source for purchasing overstock, discontinued, and scratch-and-dent equipment and supplies, and you will be shocked at how good our prices are (an average discount of over 50% of today’s market price).

The FSX online marketplace provides restaurants, caterers, schools and other food service facilities with access to a wide assortment of products. The exchange allows for direct sales between pre-approved sellers and buyers, ensuring a seamless, reliable, and fast timely transaction process. Whether it is a model from a previous year or an item with a slight imperfection, buyers can purchase anything they need from our extensive pool of pre-selected, certified top equipment manufacturers and dealers. With Food Service Exchange, customers can expect premium equipment and supplies, amazing prices, timely shipping, and consistent satisfaction. Find out more information today about FSX Food Service Commercial Kitchen Equipment and Restaurant Supplies at 20 – 50% off market prices, with a minimum 90-day warranty. Plus, 5-star customer service reviews, unmatched 90-day warranty, and always free shipping!