To Tip or Not To Tip? When a Service Charge Is Included

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You’ve probably experienced it. You get the bill at a restaurant or for food delivery, and there’s a service charge attached that you weren’t anticipating. The truth is that service charges are becoming more common.

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Bob Patterson, CPA and founder of Patterson & Company Certified Public Accountants, specializes in the restaurant industry. He said he is seeing a significant increase in restaurant clients’ inquiries regarding adding various service charges as a way to avoid raising menu prices.

Although service charges can be assessed for valid reasons, they sometimes can be confusing and leave you wondering if you should also include a tip. And when you add the service charge to other fees, such as when ordering from food delivery services, your total bill can really add up.

So should you tip or not when a service charge is included, or is a service charge the same as a tip? Here are the answers you’re looking for.

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Firstly, What Is a Service Charge?

A service charge is a fee that can be assessed to cover the actual service provided to a customer, or for administrative or processing costs related to the product or service the customer is purchasing.

Georgia Parker, a project coordinator for Blue Orbit Hospitality Consulting, said there are many reasons service charges are added to checks, including when ordering from food delivery services. “Nowadays, service charges that are added to the bill do not go towards the driver’s compensation,” she said. “Therefore, a consumer should absolutely tip.”

Parker also explained why a restaurant might charge a service fee and how to handle it.  

“While dining in a restaurant, a service charge can be added to large parties at a varied percentage because large [parties] require a higher degree of attention to coordinate their service. Whatever the percentage that has been added to the check, if you think more is deserved, add it. On the flip side, if you received poor service and don’t think the percentage has been earned, speak with a manager — if for no other reason than to seize the opportunity to provide a learning experience for the staff.”

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But service charges aren’t always assessed for the same reason when dining out. Jes Taylor, one of the owners of the Sergeantsville Inn in Sergeantsville, New Jersey, gave insight into other reasons why a restaurant might include a service charge. 

“There is a distinct difference between service charges and gratuity. In New Jersey, gratuity on restaurant charges can only go to ‘guest-facing’ staff — servers, bussers and bartenders,” said Taylor. “Here at the Sergeantsville Inn, we have decided to add a 5% service charge to fund benefits that apply to our back-of-house staff, as well. This charge will go directly to several benefits, including offsetting health insurance costs, which, for low-income workers, can be very high, and providing a free daily meal, for which most restaurants charge their employees.

“We feel that the service charge allows us to narrow the wage discrepancy between front- and back-of-house employees without taking money directly from the service staff.”

Do Service Charges Differ Between Businesses?

Yes, service charges do differ between businesses, even when they are in the same industry.

For example, a service charge at a bank is usually assessed to help cover the costs of maintaining your account, whereas a service charge at a hotel could cover the administrative fees associated with booking your reservation.

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Does a Service Charge Count as a Tip?

According to the U.S. federal government, “A tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed for the customer. It is to be distinguished from payment of a charge, if any, made for the service.”

In other words, in America at least, a service charge does not count as a tip because it’s a fee that’s charged to the customer — not something voluntarily given by the customer.

So if it’s customary to tip for a product or service you’re receiving, the rule of thumb is to disregard any service charge that might be included. And if you have questions about a service charge, never hesitate to ask.

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About the Author

Cynthia Measom is a personal finance writer and editor with over 12 years of collective experience. Her articles have been featured in MSN, AOL, Yahoo Finance, INSIDER, Houston Chronicle, The Seattle Times and The Network Journal. She attended the University of Texas at Austin and earned a Bachelor of Arts degree in English.
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