Are restaurant service charges a tipping point for change?
Jennifer Silva, 30, had worked in the service industry since 2015. All kinds of restaurants: mom-and-pop, corporate and everything in between. And she was done.
Competition with her teammates and toxic tension with back-of-house staffers were among the issues weighing on her — not to mention wage instability.
“I’d had one too many six-hour shifts where I’d send people home, wanting to grab all the tables only to end up closing by myself and leaving with maybe $50.”
Then came Kaya. Silva is the lead server at this rising star.
Yes, Kaya was named Restaurant of the Year in the 2024 Orlando Sentinel Foodie Awards. They are a finalist for Best New Restaurant in the James Beard Foundation Awards. Last week, they were awarded a Green Star by the Michelin Guide for their sustainable practices. But despite the raves, the house hasn’t always been full.
“The road was closed for 10 months!” jokes co-owner Jamilyn Salonga-Bailey of ongoing construction in their Mills 50 neighborhood. Despite her good humor, things were truly precarious. And yet Kaya, unlike many restaurants in town, is fully staffed with an ample stack of resumes on file.
In part because of the 20 percent service charge guests will find on all checks.
Service charges are a growing trend in the industry. And they’ve been causing confusion, sometimes ire, among diners who, in an age of flip-the-screen tip fatigue at counter service operations, feel increasingly bilked.
A recent post on the Orlando Foodie Forum presented by Tasty Chomps! prompted more than 300 comments when a member shared her experience at Winter Park’s posh AVA MediterrAegean, one of several venues in the Riviera Dining Group portfolio.
“It was pricy, but I knew that beforehand,” she wrote. “When they brought the check, there was an automatic 18% service charge added. Fine. BUT THEN the server told us that 18% service charge goes to the kitchen staff and doesn’t go to her or the food runner, aka she asked us to tip on top of that. Can that be real? Are we really expected to tip 20% in addition to the 18%?”
AVA MediterrAegean declined the opportunity to shed light on their policy, but the larger question remains: What are service charges? Why are we seeing them more often? Where does the money go?
That last part is up to the restaurant.
Service charges – which can also be called service fees, living wage fees, health care surcharges, kitchen fees, etc. – can be used at the restaurant’s discretion. Many will offer up their philosophy for guests to explore via table cards, scannable QR codes or, in Kaya’s case for a time, right on the menu.
“No one read it,” Bailey says.
Now, when people ask, servers and/or managers are happy to explain.
“Traditionally, restaurant servers are paid a ‘server wage,’ which can be below the minimum wage,” she says.
At present, Florida’s minimum wage is $12 an hour. The server wage is $8.98 an hour.
“The idea is that this difference is going to be made up in tips. It’s the model people are used to.”
It’s an antiquated system, she says, a mold she and her partner wanted to be a part of moving past when they opened Kaya.
“Here, we pay everyone well above minimum wage, so they don’t have to rely on tips to make a living….” says Bailey. “The 20 percent service charge is implemented so that we can afford to pay everyone, front and back of house, equitable wages, regardless of how busy it is.”
Though often looked at as a cash grab by consumers, service charges, increasingly, have been a way restaurants can offset the rising costs of doing business without raising menu prices.
“Restaurants are scrambling to try to make ends meet in a difficult economy,” says Matt Hinckley, chef/owner of Hinckley’s Fancy Meats and two burgeoning concepts — Mid Drive Dive and Boxer & Clover.
“The price of everything seems to be increasing. The price of food skyrocketed during the pandemic. There hasn’t been a lot of recovery. My insurance went up about 60 percent this year with no difference in coverage. There’s an absence of labor, so any you are able to get is more expensive than it has been before.”
Many costs are fixed, he notes. “The only thing I can adjust is the price on my menu.”
So, why not raise them to reflect the cost of doing business?
It’s a tack many suggested on the Facebook thread, a question that has been asked repeatedly over the years. And a massive “hospitality included” experiment conducted by restaurant guru Danny Meyer back in 2015, when he eliminated the tipping model from the entire Union Hospitality Group portfolio.
Even with a groundswell of support from well-known players in the industry and mom-and-pop indies on both coasts. Even with surveys indicating that America might at last embrace the no-tipping model found in many other nations, it was an experiment that ultimately failed. In part, a 2018 story in New York magazine determined, because “without tips, prices look higher and customers balk.”
Hinckley cites this as one reason he won’t do it. At Mid Drive Dive, where the $19 elk bacon cheeseburger is the menu’s priciest, a near-$4 bump could easily send folks elsewhere. Brennan Heretick understands.
“The problem with [raising prices] is that people will still have to come in and pay those prices to support that business model,” says Heretick, managing partner of High Tide Harry’s, which will mark 30 years open in June. “But people are frugal. It’s tough out there. Only rich people are going to be OK with paying $29 for a hamburger. They’d rather pay less, get good service and tip based on that. It’s a business model that has worked for us. Why change it?”
John Washburn, owner of the Imperial wine bars and The Sullivan Public House in Sanford, likes the idea but admits the education curve can be challenging and stiff competition.
“You have to explain the bottom line: price of goods has gone up, price of labor, everything. You can’t keep your sandwich priced at $8, you have to raise your prices until people understand, but the marketplace is so tight, and the big corporate chains can hold out long enough to kill off their independent competitors, which is what’s happening right now.”
Come July, California restaurant owners will have no choice.
A new state law banning unadvertised service fees, surcharges and other additional costs that are added to the end of a bill for meals will go into effect on July 1. It’s intent: an end to “junk fees” across industries, including online ticket sales, hotels and restaurants, among others. Consumer protection is its intent, say proponents, but restaurateurs are worried that menu sticker shock will cause further upheaval in an industry already under pressure.
Much like the folks behind Kaya, when Maria Ruiz and her husband Kevin opened Papa Llama, there was a lot of intention. It was also the middle of a pandemic.
“We struggled to hire and retain people,” she says.
A 20 percent service charge was implemented to make a set wage for everyone in a restaurant that at the time had three, five, 10 tables as things were normalizing and COVID-related rules rolled back. After the pandemic, they switched back to the typical mode, but now, as they’ve gone to a pre-set menu, they plan on reinstating the service charge policy as of May (this, even before they were awarded a Michelin Star last week).
Transparency has always been the policy (Florida state law requires disclosure of all service fees, on which businesses are taxed at the 6.5% rate), but Ruiz says many of the customers who seek out spaces like hers do so in part because of practices like livable wages and supporting local farms.
“Personally, I agree that it would be easier for the average restaurant to include all necessary expenses into the menu prices, but in order for that to happen, there would need to be a cultural shift,” she says. “Overexplaining isn’t a position that any business owner wants to be in. It’s easier to just go with the flow.”
It’s a microeconomic issue amid many shifting plates in the foundation of the restaurant industry post-pandemic.
But, say Bailey and Silva, it may be the beginning of an evolution that sees people moving toward something the world wasn’t ready for when Danny Meyer brought it to the table, something that can retain those built for hospitality by creating a new environment — less “The Bear” and more “we care.”
Many argue that service charges, or a no-tipping culture, equates to getting service that’s less than desirable, Bailey notes, but she’s found that it’s quite the opposite at Kaya, where servers used to a system that’s “every man for himself,” are now part of an environment where teamwork and camaraderie flourish.
“In so many places, there’s no soul,” says Silva, who cites paid time off, flexible hours and a deeper understanding of what goes into the business.
They worry less about who has how many tables and help one another out when things are busy, knowing that their compensation doesn’t absolutely depend on the kindness of strangers, who mostly end up being pretty kind, anyway.
Silva says 30-50 percent of customers leave an additional something on top of the check. “The line for gratuity was added back because people asked for it,” says Bailey, reiterating that no additional gratuity is expected.
“Our servers are super talented. If they were to go to work at Disney World or a higher-volume restaurant, they could probably make a lot more.”
But, she says, they see there’s a trade-off of culture, of quality of life. They see things are changing, and that Kaya and places like it are trying to be a part of that.
“That’s what really healed me in this industry,” she says. “Seeing that it could be more than what it’s been. Seeing that just because we’ve been doing it one way for so long, that doesn’t mean we can’t change it into something different.”
Want to reach out? Find me on Facebook, Twitter or Instagram @amydroo or on the OSFoodie Instagram account @orlando.foodie. Email: amthompson@orlandosentinel.com. For more foodie fun, join the Let’s Eat, Orlando Facebook group.