3 Tips for Properly Implementing a Restaurant Service Surcharge

With more cities (and some states) upping their minimum wage, it’s obviously becoming more difficult for independent restaurants to keep up with the added labor costs. It’s leaving restaurant operators with just a few main options:

  1. Increase menu prices
  2. Decrease staff/labor
  3. Add a restaurant service surcharge

Decreasing the number of staff on payroll or their total hours is one way of getting around the added cost. It’s also a sure way of gaining the ire of your staff and possibly lose staff as they move on to green pastures. And restaurants are having enough trouble finding quality talent to fill their roster as it is.

Increasing menu prices is also a legitimate way of offsetting the increase labor costs. However, most operators are hell bent on avoiding that route at seemingly all costs. And it’s understandably so. Just teasing the idea of raising prices feels like endeavoring into a minefield where each of your guests could potentially explode on you.

Then there’s a third route that some restaurants have experimented with – service surcharge. It’s a fee added at the end of a guest’s bill, typically based off a percentage of their total pre-tax check. Most restaurants who have implemented this at their locations charge between 3-4%. Restaurants who have swapped surcharges in for tipping have gone as high as 18%.

While this allows restaurants to keep their staff employed at normal strength and hours, and avoids the dreaded menu price increase, restaurant service surcharges aren’t without their own problems that operators should seriously consider.

Don't try to hide the fact you're implementing a restaurant service surcharge on guests' bill.

One of the main stumbling blocks of the service surcharge is that restaurants are bad at giving their guests a heads-up notice about the addition. So, the entire program comes off as being a shady money-grab. Another pitfall operators have fallen prey is publicly complaining about minimum wage increases and blaming it for the service charge. That always comes off as whiney and has yet to garner the commiseration operators were hoping for.

All this doesn’t mean that restaurant service charges aren’t a viable option. It just means, like in all things with your restaurant, it takes a little thinking and planning. Here are three tips for implanting a service surcharge at your location(s).

Get guest & staff feedback

The difference between higher menu prices or a service surcharge is mostly semantics. In the end, the goal is to increase revenue to pay your front- and back-of-house staff more. But what works for one restaurant might not necessarily work for yours.

In cases like this, it might be worth seeing what your staff thinks and polling your guests. Let your guests know that you need to raise additional revenue to pay your staff living wages. Ask them how they would prefer to see it enacted – an increase in menu prices or a service surcharge. It may also help to talk to your staff about the changes and see what insight they have into the issue. They are also directly impacted by the decision, so hearing their thoughts is prudent.

Be upfront & honest about the surcharge

No one wants to pay more for anything but trying to hide the service surcharge from your guests will only blow up their annoyance. They’ll feel like you’re trying to be sneaky and cheat them out of a few extra bucks. That’ll surely lead to a bad Yelp review and a lost guess. Communication is the key to avoiding this train wreck.

Post a notice in your menus about the change. Be thoughtful and pleasant in your wording, stressing the positive impact this will have on your staff while also showing you understand how this effects the guest. You may want your servers to verbally alert your guests, too, if you’re afraid guests will overlook the note.

You also should call out the surcharge on the bill itself with some sort of a note, just in case your guests didn’t see it on the menu and so they have some context as to why their bill is 4% higher than expected.

Implementing a restaurant labor charge isn't for everyone. Do your research first.

Don’t use the surcharge to bully your guests, staff

We get it. You may hate the idea of having to pay your staff more for any myriad of reasons. But guess what? Your guests don’t care. They will, however, care very much if you come out swinging with notes or tweets that seem like you’re taking shots at your staff for trying to earn a living.

Guests have no inclination and little interest in knowing the ins & outs of running a restaurant. All they’ll see is an employer dumping on the idea of that their staff deserve to earn a livable wage. That’s one stop trip to disasterville and awful PR.

Regardless of your social or political feelings of minimum wage increase, it’s best to put on your best face and explain (pleasantly) that the service surcharge is to help pay your staff a living wage. Anyone on Facebook or Twitter that complains about that will come off as looking like the jerk. Operators need to take the high road.

In the end, you’re never going to be able to please everyone. No one wants to pay more for the same amount (or less). If you raise menu prices, some guests will complain. Meanwhile others will prefer you raise prices over what seems like a shady workaround in a surcharge. At the end of the day, operators need to do what they always do – figure out what’s best for their business, both for themselves, their staff and their guests. But a little foresight, compassion & communication can go a long way.