According by newsnationnow If you’ve noticed extra line items on your restaurant receipts lately, you’re not alone. Data from point-of-sale company Square reveals a rising trend of restaurants adding service charges to their bills.
According to Square, 3.7% of food and drink transactions included service charges in the last quarter. While this represents a relatively small portion of the industry, the practice has seen a notable increase. It’s now about twice as common as it was in 2022. Three years ago, only around 1% of restaurants were adding service or labor charges to their bills, based on Square’s data.
Service charges differ from gratuity or tips. Instead of being a reward for service, they are additional fees that help restaurants cover various operational costs. These charges may be labeled as a “living wage” fee or “kitchen fee” to support back-of-house staff like cooks and dishwashers, or they might be used to contribute to employee health care costs. Occasionally, service charges may also function as a mandatory minimum gratuity, divided among all restaurant employees.
Despite the frustration some diners may feel about these extra costs, restaurant owners argue that service charges are a necessary measure to manage tighter profit margins amid rising expenses.
“Margins are tighter than ever for restaurants, and operators need to find ways to offset higher costs,” said Ming-Tai Huh, head of restaurants at Square. “Service fees help manage unpredictable shifts in operations, overhead, maintenance, and administrative expenses.”
Service charges are typically disclosed somewhere on the menu, but many diners overlook this information, only to be surprised when the check arrives. Huh emphasizes the importance of transparency: “As a restaurant owner, it’s crucial to clearly communicate these fees so customers understand the total dining costs and how the fees are allocated.”
Restaurants might wonder why they don’t simply include these fees in menu prices. However, increasing menu prices has its own challenges. “Restaurants have been raising menu prices to cope with soaring operational costs, but they face pushback when prices rise too quickly,” noted Denise Mickelsen, communication director at the Colorado Restaurant Association and Foundation.
Even with rising consumer spending in other sectors this summer, restaurants have not benefited similarly. Restaurant sales fell by 1.6% in July 2024 compared to the previous year, despite a modest increase in foot traffic (up 0.7%). The average check size also dropped by 2.4% from July 2023, though it’s unclear whether this decrease is due to lower prices or diners ordering less.
As service charges become more prevalent, diners and restaurant owners alike will need to navigate this evolving aspect of dining out.
