Eye on Hospitality: Focus on Service Charges

Eye on Hospitality: Focus on Service Charges

By Paul Schlienz

The Washington Hospitality Association’s recent Hospitality Summit, in Seattle, brought together some of the state’s top movers and shakers in the hospitality industry for some great panel discussions. Among these discussions was one on service charges as a possible replacement for tipping. The participants were Michael Hirschler, director of human resources for the Four Seasons Hotel Seattle; Eric Tanaka, executive chef and partner at Tom Douglas Restaurants; and Marney Zellers, advisory manager at Preston Sullivan.

Here are some questions and answers from the session:

Q: How do you engage employees if you are planning on switching from tipping to a service charge model?

Michael Hirschler: Our employees are smart. The sooner you engage in this exercise if you’re going down the road, the better because when we sat down with our server team, they said to me, “We knew this was coming.” They know what sustainability looks like, and they were thrilled that we were engaging with them in a conversation three months before we were going to do anything related to their income. They were thrilled they had a seat at the table from Day One.

Q: How does a commission-based service charge model work?

Eric Tanaka: If you’re a hungry server and you take more tables and you stay later or whatever, it is, you have that opportunity. Some pool houses don’t work that way. It’s a little different. There’s not as much of a reason to stay to take an extra table. It’s going to the pool to be distributed rather than going to you directly. We’ve stopped using the word “tip.” It’s really confusing to the customer and your internal staff. We don’t send any service charges back to the kitchen. Six percent out of 20 percent goes to revenue shares so bar backs, bussers, hosts, etc. – that’s how they’re funded.

The 9th Circuit ruling on tip pools – if it’s not an employee that’s customarily tipped, which a cook is not, then hypothetically, you’re not supposed to fund them out of a tip pool. So, most of the rulings are going against that, and that’s one of the reasons we went to a service charge now because service charges can be moved around. Anything paid to the house can be manipulated that way, so I think the service charge rules allow you to move money to the back while tip pooling is in the gray zone now, but most of the laws and legislation are tending the other way.

Q: How do you prepare guests for a switch from tipping to service charges?

Marney Zellers:  Within your organization, I really believe it’s about aligning everyone’s incentives. When you start talking about the guests, it’s really about perception, So, that’s where the messaging is ultimately important, If you have to take a long time to explain it, it’s probably not coming across well. You have to always remember that your guests are tippers, and people are tippers because they’ve been trained to be that. If somebody serves you, it’s your choice to do that. Even if you might feel some coercion there, it is actually your choice to do so, and the tip that you give is intended to go to the server.

Eric Tanaka: We have a tavern at South Lake Union. We transitioned them to service charges the last of our restaurants because we were concerned that a service charge, in a tavern, would not go over well, but it was the place where we had the least complaints. You have to know your customers. I don’t think there’s one solution that’s going to work for every restaurant.

For this entire discussion on service charges, you can view it at the Washington Hospitality Association’s YouTube channel.

Categories: Full Service, News Room