Restaurants Weigh in on Replacing Tipping with Service Charges
by cjleclaire
 Stephen Hans Blog
Apr 19, 2016 | 48793 views | 0 0 comments | 480 480 recommendations | email to a friend | print | permalink

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Various restaurants across the country are in the process of changing tipping into service charges. The Seattle Eater published an article about a restaurant called Mollusk that eliminated tipping and replaced it with a 20 percent service charge. However, after implementing the change, this restaurant and brewery struggled.

The Chef/Owner of the business said he split the service charge equally between kitchen employees and front-house employees, who deal directly with customers. Kitchen employees’ wages increased from about $15 to $18 per hour. However, the loss in customers resulted in servers, bartenders and hosts making considerably less money.

To make up for income loss, restaurant management cut staff and dropped its lunch menu service in January. The owner had to reinstate tipping and also increased the restaurant’s menu prices by 10 percent to help kitchen staff earn higher wages. Fortunately, the neighborhood is a fast-growing area, and the restaurant hopes to increase its business soon based on population increases.

Is the service charge model a failure business-wise?

It depends on restaurant management, the location and the extent that customers prefer tipping. The Mollusk wants to go back to the service charge model after it gets the business boost it needs right now.

The News Tribune reports that Indochina Asian Dining Lounge in Tacoma, WA implemented an 18 percent service charge in June 2015. As of January 2016, the change was successful and servers average $20 to $25 per hour while kitchen staff earn between $15 and $20.

Another restaurant owner in Philadelphia says he is doing well with the service charge model. According to Second Nexus, William Street Common’s owner says he’s hitting numbers that other restaurants get with the tipping model. Downfalls of tipping involve people who tip based on:

  • How fast the food arrives
  • Whether the restaurant runs out of a particular dish
  • Whether the servers were there when the customer wanted them to be

These poor management decisions shouldn’t influence servers’ tips.

Even so, in many regions Americans prefer tipping compared to service charges.

Are you thinking about implementing service charges instead of tipping in your restaurant business? We recommend you get a legal opinion first.

At Stephen Hans & Associates, our attorneys routinely consult with business owners to help them comply with state and federal laws. Doing business in today’s world often requires reliable legal guidance.

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