A receipt from the Flea Street Cafe in Menlo Park explains how the service charge will be shared with the staff. In most places, restaurants do not have to give money from service charges to workers.
The owner of Che Fico in San Francisco uses a 10% dining-in charge to fund competitive wages and a 401k plan with an employer 4% match for workers.
Of all the restaurant trends that have persisted since 2020, from the QR code menu to parklets, perhaps the stickiest, most controversial thing is the service charge.
They can seem pretty arbitrary: At a recent meal at Z&Y Restaurant in San Francisco’s Chinatown, my bill included an 18% “service fee.” When I stopped at Pacific Heights’ Spruce for a burger a few months ago, there was a 20% service charge and a 3.75% charge for “S.F.-mandated employer expenses.” At the restaurant inside the ritzy Madrona Hotel in Healdsburg, the “employee mandate” was just 2% of my bill.
While tip-like in appearance, however, none of these charges were tips. And without clear rules for how these charges should be used and explained, these fees are causing problems for everyone.
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As the range of percentages and terminologies indicates, the world of restaurant service charges is one of total anarchy. Unlike tips, which must go entirely to service staff, every cent of a service charge technically belongs to restaurant owners, who can do anything they want to with it. There are rare exceptions to this rule: In Oakland and Berkeley, service charges must go to the employees who worked the related shifts. But in many other places, there are no legal ramifications for an owner keeping the money and spending it on anything else.
This may all change when the Federal Trade Commission follows through on President Joe Biden’s proposal to eliminate “unfair and deceptive” junk fees nationwide, which he flagged last week in his State of the Union speech. So far, the FTC’s proposal, citing research and 72,000 public comments it’s received, has targeted restaurant service charges — alongside the other add-on charges, like hotel, live-event ticket and air travel fees — for increased regulation and transparency. When you look at a restaurant menu, the FTC wants you to know what you’re actually paying for if there’s a service charge and for the restaurant to spell out where that fee is going.
In response, the Independent Restaurant Coalition, formed during the pandemic to advocate for restaurants, urged its 150,000 members to lobby Congress to strike any mention of restaurants from the proposal.
“This policy would significantly curtail the progress these businesses have made to fairly and properly pay their workers and negatively impact the very people President Biden and the Administration intends to help,” the coalition said.
I can empathize with restaurant owners’ reasons for implementing service charges, which the FTC says are practiced in 20% of restaurants. Profit margins are razor thin and labor costs in a post-2020 world — in which many workers either dropped out, became permanently disabled or passed away — directly compete with diners’ collective sense of how much a burger should cost. Commercial rent in cities like San Francisco, where landlords have held fast on the hope that people will pay now for prosperity later, has also squeezed independent restaurants.
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When I asked restaurant workers on Instagram to chime in on the service charge issue, they echoed this concern.
“Service fees are a ripe opportunity for what is essentially wage theft,” said Milo Salehi, beverage director at San Francisco’s Cavaña, when I called him to elaborate on a post he’d written. He wouldn’t work at a place that had a service charge. “I’ve known people that have worked in those environments, and there’s a lot of frustration with the amount of money they get and the lack of transparency in it.”
Others agreed. One veteran of Michelin-starred restaurants said, “We have done the math at several restaurants and it does not add up. Ownership often uses these funds to pay management salary, expand their business and even open new locations — all out of money that is given by the guest with the implicit understanding that is going to the front of house/back of house staff.” They blamed this practice for contributing to the labor shortage hounding restaurants.
“I worked at a high-end restaurant in Healdsburg that decided to add a 3% service charge that goes to pay management!!! How insane is that?” another person messaged me. “They tried to explain it away like it would help the staff but really it took tips down from 20% to 17% while still paying minimum wage!”
That said, when done right, the service charge can be a wonderful thing. Che Fico chef-owner David Nayfeld has been admirably outspoken about how the restaurant’s 10% dining-in charge has impacted worker welfare: staff now have a 401k plan with an employer 4% match and competitive wages. And the Independent Restaurant Coalition rightfully notes that tipping culture, embraced by white American business owners after the Civil War to avoid paying Black workers actual wages, is tainted by racism and sexism.
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But the problem is that not every restaurant is transparent. The fact that any abuses are possible — and that this behavior isn’t unlawful in most of the country — speaks to the need for regulation.
Reach Soleil Ho (they/them): soleil@sfchronicle.com; Twitter: @hooleil
Restaurant ‘service fees’ are aggravating diners all over the Bay Area. Help could be on the way
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13.03.2024
A receipt from the Flea Street Cafe in Menlo Park explains how the service charge will be shared with the staff. In most places, restaurants do not have to give money from service charges to workers.
The owner of Che Fico in San Francisco uses a 10% dining-in charge to fund competitive wages and a 401k plan with an employer 4% match for workers.
Of all the restaurant trends that have persisted since 2020, from the QR code menu to parklets, perhaps the stickiest, most controversial thing is the service charge.
They can seem pretty arbitrary: At a recent meal at Z&Y Restaurant in San Francisco’s Chinatown, my bill included an 18% “service fee.” When I stopped at Pacific Heights’ Spruce for a burger a few months ago, there was a 20% service charge and a 3.75% charge for “S.F.-mandated employer expenses.” At the restaurant inside the ritzy Madrona Hotel in Healdsburg, the “employee mandate” was just 2% of my bill.
While tip-like in appearance, however, none of these charges were tips. And without clear rules for how these charges should be used and explained, these fees are causing problems for everyone.
Advertisement
Article continues below this ad
As the range of percentages and terminologies indicates, the world of restaurant service charges is one of total anarchy. Unlike tips, which must go entirely to service staff, every cent of a service charge technically belongs to........
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