Doing Service Charges (Correctly)

Doing Service Charges (Correctly) https://wahospitality.org/wp-content/uploads/2018/02/TFT-Accounting-woman-RAW.jpg

By Paul Schlienz

Restaurateurs have been responding to changes, including higher minimum wages and uncertainty about tip pooling, in a variety of ways. One response is to get rid of tips all together and move over to service charges.

It is important, however, if you’re going to utilize service charges, in your restaurant, that you are aware of all federal and state requirements before embarking on this course.

Federal law defines service charges as a compulsory charge for service. In contrast to service charges, tips allow guests to decide whether to give tips, how much to give and who to give it them to.

Initiative 1433, which passed in Nov. 2016 by Washington voters, contains an express prohibition on the use of service charges to meet state minimum wage requirements.

Under Washington state law, employers who impose a service charge “related to food, beverages, entertainment, or porterage provided to a customer” must disclose, in an itemized receipt and in any menu provided to the customer the percent of the service charge that is payable directly to the employee or employees serving the customer.

This law defines “employees” as “non-managerial, nonsupervisory workers, including but not limited to servers, bussers, banquet attendants, banquet captains, bartenders, barbacks, and porters.”

This law defines “service charge” as “a separately designated amount collected by employers from customers that is for services provided by employees, or is described in such a way that customers might reasonably believe that the amounts are for such services.” It includes charges designated as a “service charge,” “gratuity,” “delivery charge,” or “porterage charge.”

Here are examples of service charge disclosure statements:

Restaurant Menu

A(n) % service charge on the total bill will be automatically added for parties of                            or more, plus sales tax.  Service staff receive             % of this added service charge.

Catering Menu

Beverage items, service charge and sales tax are not included in the listed prices. A(n)                                                                                                % service charge on the total bill will be automatically computed and added to the overall invoice for food and beverage plus sales tax.

% of the computed service charge is distributed to non-managerial service staff.

Food Beverage Total food & beverage   Service charge @        %    Pre-tax total               % of the service charge is distributed to non-managerial service staff.

Porterage Fees

Client agrees to pay $                   porterage fee per room for bell staff to deliver [item(s) to be delivered]. Bell staff/Porters receive              % of the porterage fee.

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To help avoid potential claims for breach of contract (express or implied) or unjust enrichment, employers should consider advising employees in writing as to whether and to what extent service charges are paid to employees, and to obtain written acknowledgment regarding the same.

Always keep in mind the need to scrupulously follow the rules if you are contemplating using service charges. Already, restaurateurs are facing lawsuits, in California and Oregon, over service charges, so know what you’re doing before you do it.

For more information on service charges, see the Washington Hospitality Association’s HERO Manual, or contact your Area Coordinator to reach out to our advisory network.

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