Dining out has become a luxury as prices for everything climb higher. As affordability worries permeate the minds of Americans, eating-out may not be as feasible for much longer. Even the price of a pizza has gone through the roof these past two years!
To complicate matters, the tipping culture has had its complexities over the years. With recent changes to the minimum wage laws for restaurant workers in many states, and the federal government’s recent adoption of not taxes a server’s tips, restaurants are finding creative ways to cover their higher labor costs. One scheme is padding your bill by 3-5% as a surcharge to cover their higher labor costs.
The question many consumers are asking is this: “Should restaurants be making patrons cover the 3-5% surcharge to their bill? Or should they be more transparent about why they are adding surcharges?
Under the federal Fair Labor Standards Act, the direct cash wage for tipped restaurant workers is $2.13 per hour, provided their tips bring total earnings up to the standard federal minimum wage of $7.25 per hour. If tips and direct wages do not equal $7.25, the restaurant employer must make up the difference. Non-tipped restaurant staff must receive the full $7.25 per hour.
In progressive states like California, the minimum wage for restaurant workers is $16.90 per hour statewide. However, if the restaurant is a national fast-food chain with 60 or more locations, the minimum wage is $20.00 per hour. California does not allow a tip credit, meaning all tipped workers must receive the full base minimum wage plus tips.
Across the country, New York state’s minimum wage for restaurant workers depends on the worker’s specific job role and region. The total basic minimum hourly rates are $17.00 in New York City, Long Island, and Westchester, and $16.00 in the rest of the state. Employers can meet this using a direct cash wage combined with a tip credit.
Here are some facts about restaurants adding these surcharges to your bill, and whether or not it is a fair and ethical practice:
Why the Surcharge?
As noted earlier, many restaurants, especially national chains across the country, are adding 3-5% surcharge costs to your total bill. The fees are becoming more common, but many patrons are concerned that this practice, if not clearly disclosed in advance of ordering a meal, may come across as sneaky if the surcharges are not mentioned by wait staff or clearly noted in the menus or table tents.
Restaurant owners tell us they are implementing these surcharge fees because of rising costs including labor, rent, food, and utilities.
Another area where business costs are increasing is credit card processing fees. More and more small businesses are charging consumers a convenience fee if you want to pay by credit card. Most restaurants take credit cards as a form of payment. Many credit card companies charge processing fees, such as Visa, Mastercard, and more. The fees have doubled over the last 10 years, from 2-4% of the transaction.
How Will You Know If a Surcharge Has Been Applied to Your Bill?
So, when you get your check at a restaurant, how do you know if a surcharge fee has been added to your dining bill? Some surcharge fees can appear under different labels on the bill. Here are some of the most common:
- Service fee
- Labor surcharge
- Wellness fee
- Kitchen fee
- Improvement fee
- Credit card processing fee
But, however it is labeled, most restaurants are implementing this strategy to offset the minimum wage increases and health insurance prices. This covers the cost of paying the staff wages and benefits.
And then there’s the Operational and Wellness Costs of doing business. Some surcharge fees may cover technology and health and wellness expenses. This can include employee benefits and online ordering systems.
Consumer Reactions:
To put it mildly, diners are frustrated and angry by this practice. Many people find it unfair that they are expected to cover these traditional costs of doing business. It’s akin to the airlines charging you for selecting a specific seat in Economy Class, or dinging you for checking a standard suitcase. Or, hotels charging you a Daily Resort Fee to use the fitness center or pool, or to receive a newspaper. Patrons believe the restaurants should pay their service staff a fair rate and not force customers to pay the difference. It’s reaching the point with many consumers that they are voting with their feet and their pocketbooks, and just staying home!
So, why don’t restaurants just raise their menu prices? Well, according to many of the restaurants we interviewed on this topic, raising prices would drive away customers. So, they are using creative pricing strategies such as adding a surcharge fee to your bill in the hopes you, the customer, won’t challenge it and refuse to pay it. Or, worse, punish the wait staff by reducing their well-deserved tip by 3-5% as a mild protest to balance the true cost of a meal.
Regrettably, in many cases, the surcharge fees at restaurants, especially the high-end establishments, are unannounced, and diners are not happy about it when they see that surcharge of 3-5% on their bill. In addition to America’s generous tipping culture – as compared to Europe’s standard 5-10% tip, and Asia’s no tipping culture – there is growing resentment among diners that now they are expected to pay additional fees that the restaurant and the owners themselves should be covering through the items as priced on their menus. Patrons should not have to pay a separate fee for the health and wellness benefits or wages of the restaurant staff.
What restaurant owners haven’t considered, or ignored, is that diners are growing increasingly agitated about paying for fees that have nothing to do with their dining experience or orders. And, worse, they leave feeling short-changed, bamboozled, and even upset, declaring under their breath to never return.
Perhaps, that’s a narrow interpretation on the part of customers, but consider this fact from the patron’s perspective. When you go to the Fine Dining Restaurant in your city and you order a smooth glass of Pinot Noir, the Wedge Salad with blue cheese, the Filet Mignon, and the lemon tart with your coffee, nowhere did you see any item that says “Health and Wellness Benefits, $3.00” or, “Help our Wait Staff ay their monthly rent, $4.50.” No, you will never see such notices. But, perhaps, if 8 point font in a shaded area at the bottom of the menu, you might read: “This establishment adds a reasonable and customary 4 percent surcharge to each bill to cover state mandated wage increases.”
I recently dined at a very nice restaurant in San Diego and overheard four seniors sitting at the table next to me spend 15 minutes debating this surcharge practice – and questioning why is the restaurant blaming the Governor for raising the minimum wage to a livable wage for these hard-working employees? — instead of enjoying their cocktails and not fussing over a 4 percent surcharge!
Surcharge Fees vs. Credit Card Award Points:
For business travelers like myself, the surcharge fees also negates any benefit I would have gained by using my Visa, Mastercard, or American Express credit card and earning some rewards points. So, what’s the point of having a credit card? This is even more frustrating at small businesses that add a convenience fee when I use a credit card to pay. Only two states – Connecticut and Massachusetts – prohibit this practice.
Although restaurant operators argue that customer comparison of menu prices prevent them from increasing menu items, the surprise of surcharges on a bill damages the trust with many customers. Diners want transparency, not to feel nickel-and-dimed. Quiet boycotting has been occurring ever since the surcharge fees came to the forefront; and, from our perspective, it doesn’t look like they’re stopping any time soon.
What Diners Can Do About Surcharges:
If you are dining out, there are a few ways you can prepare for the surcharge fees. First and foremost, ask before paying. Some restaurants will remove the surcharge fee if you ask.
Next, check the receipt. Look for the surcharge fee and the percentage charged. It’s usually stated at the bottom of your receipt. While you can ask what the surcharge includes, my experience the waitstaff tries diplomatically to explain “it’s something most restaurants are adding to cover rising costs…” By this time, it’s too late to argue with your waiter or waitress, and you don’t want to sound like a cheap curmudgeon in front of your guests. It’s best taken care of before you sit down.
Another strategy to avoid the surcharge fee is to pay in cash or with a debit card. In 48 states, however, the law allows surcharges on all credit cards.
You can also watch for dual pricing. Some restaurants will categorize their base price and then post their surcharge separately. In some states, this remains a legal option for restaurants to practice.
Experts are urging restaurant owners and operators to raise menu prices instead of adding surcharge fees that are perceived as manipulative and underhanded. In this day and age, most consumers understand the cost of a good meal won’t be cheap. To those patrons who frequent 4 and 5-star rated restaurants, a few extra dollars for a good steak or Halibut isn’t going to cause them not to order it. And, they won’t feel misled with raised menu item costs. On the other hand, surcharges are a much bigger problem for all the reasons we’ve shared.
Bottom Line:
The bottom line is this: restaurants and small businesses in general need to find acceptable solutions for paying their staff fair living wages instead of creating the appearance that it’s the consumer’s responsibility to pick-up the tab.
Consumers do not want a cascade of microcharges. If surcharge fees are here to stay, we think restaurants and many other small businesses will ultimately pay the prices with customer defection. While most consumers understand why restaurants are opting for this method to offset the high payment processing fees and operating costs, consumers don’t like it and they will vote with their feet and their pocketbooks.
The consumer sentiment is this: it is unfair to diners that they be expected to cover the costs of staff wages and benefits that have no direct bearing on the patrons’ “dining experience.” This, of course, is in addition to being expected to tip 15-20% on top of the bill.
Restaurants need to find a transparent way to cover their costs of doing business. Raising their menu prices is both fair and transparent to consumers. Surcharges are not viewed favorably by most customers, and ultimately, it will cost restaurants who use this questionable practice valued patrons.
