When visiting a restaurant, it is expected to tip the server depending on the quality of the service received. However, most eateries also include a service fee on top of the final check. There’s uncertainty among some customers on what exactly is a restaurant service fee and whether it’s the same as a tip. In this post, we’ll make a comparison of the similarities and differences between service fee vs tip. We’ll also shed some light on the best practices regarding service fees in the restaurant industry. If you operate a business in the food service sector, you might find our articles on restaurant customer acquisition and restaurant profit margin beneficial as well.
Key takeaway: There are more differences than similarities between service fee vs tips. The former is a mandatory additional charge that is implied in certain cases. On the other hand, the amount of the tip is decided by the customer and is treated as employee income.
What Is the Service Fee in Restaurants
A service fee is a mandatory charge added to a customer’s bill. Its goal is to cover the cost of the service provided. Restaurants might have different service fee policies. For example, some might charge a service fee only on large parties of more than six people. Other eateries might have a service fee for all customers that also includes the tip.
The service fee in restaurants is usually between 10% and 20%. It can be larger for fine-dining establishments or when gratuity is included as well. It’s a taxable revenue but different jurisdictions have different rules on taxing service fees. The service fee might also depend on the scenario. For example, providing restaurant and catering services outdoors or offering room service at resorts might come with a higher service fee compared to serving a family at a restaurant. Although some customers might think that there’s no difference between service fee vs tip, the former is not a gratuity. Restaurants must disclose this on menus, receipts, or their website.
Similarities Between Service Fee VS Tip
There are few similarities between service fees vs tip. Both are additional costs on top of the base bill and they are both related to the service staff. Although service feed is primarily associated with restaurant and catering businesses, it’s also common in hotels, airlines, event management, and delivery services.
Differences Between Service Fee VS Tip
Unlike service fees, tips are voluntary payments left by customers. Although they typically range between 15 and 25 percent, customers who are extremely happy with the service can leave an even bigger tip. On the other hand, clients who didn’t enjoy the service can leave a smaller tip. Tips go directly to the service staff while service fee distribution depends on the restaurant’s service fee policy.
When comparing service fee vs tip in terms of taxes, the former is considered as business revenue while the latter is treated as employee income. There are special tools in restaurant accounting software to calculate fees and tips.
Companies in the food and beverage industry are expected to disclose to customers how the service fee is used. That is especially true in cases when the service fee includes a built-in gratuity. It’s also recommended to disclose what type of tip management policy is used and whether other staff members (except the server) get a percentage of the tip.
Best Practices for Service Fees in Restaurants
There are many best practices restaurants can incorporate into their service fee policy. If done efficiently, it can ensure fairness, help an eatery go through periods of restaurant inflation, and even be used as part of a restaurant’s marketing. Here are some best practices for restaurant service fees.
- Transparency. It’s crucial to clearly disclose service fee on receipts, menus, the restaurant website, event offers, and other places when applicable. The language be simple but it should also disclose how the service fee is used and whether it includes gratuity. Service fee policies in the food service niche market also need to be consistent in different locations.
- Staff training. When customers have questions about the service fee policy, they’re likely to ask servers. Thus, it’s important that the waiting staff is fully aware and can easily explain what the service charge is and how it’s used.
- Law compliance. Businesses need to be compliant with local and national regulations regarding service fees.
- Review and adjustments. In order to optimize the service fee policy, eateries can use restaurant technology like POS systems to analyze its financial impact (read more about restaurant technology trends). Staff and guest feedback should also be taken into consideration. Managers can revise the service fee and gratuity structure regularly. The changes need to be reflected in the menu design (the easiest way to make such changes is by QR codes for restaurant menus).
Frequently Asked Questions about Service Fee VS Tip
Whether you’re interested in food costing software or how to prevent restaurant fraud, BlueCart’s resources can help you. We have guides on calculating the cost of goods sold, posts about restaurant merchandise, and various other articles. Check out our answers to common questions regarding service fee vs tips.
What Is a Service Fee Policy?
A tip and service fee policy is used by restaurants to ensure transparency with customers and staff members regarding restaurant tipping and additional service charges. Some restaurants prefer to have gratuity automatically included in checks. Although this guarantees waiters and other staff members better tips, it can be a reason for some customers not to visit the eatery. A service fee policy typically includes information about tip handling, in which cases is service fee is added, or how the service fee is used. The policy should comply with wage, labor, and tax laws.
Should You Tip on Top of the Service Fee Charge?
Generally speaking, it’s acceptable to tip even if there’s a service charge included. That’s because the tip goes directly to servers and other waiting staff members while treatment of service charges is up to the restaurant. For example, some restaurant managers choose to have service fees only for large parties. This compensates them for the lower table turnover rate when the eatery accommodates large groups. The purpose and the management of the service fee charged should be disclosed to customers. That’s especially true if it’s added on each receipt, no matter the party size, or if it is distributed among waiters.
What Is Gratuity Included in Restaurants?
Automatic gratuity is a policy in which restaurant businesses automatically include a certain tip percentage in the receipt. You can put it on receipts as “gratuity included” or “auto gratuity”. Customers who are exceptionally happy with the service can tip their server additionally, even if the eatery has an automatic gratuity policy. Built-in gratuity might not be suitable for all types of food service businesses. It can be off-putting for some clients who weren’t very pleased with the service. Additionally, the automatic gratuity might be lower than tips and it can discourage customers to tip as much as they would have.
BlueCart: Software Solutions for Food Service Businesses
Whether you’re the business owner of a small restaurant or operate a business chain in the food service sector, you can benefit from BlueCart’s features for restaurants. That includes our tools for beverage and food inventory management, the Endless Aisle where businesses can easily order in bulk, and BlueCart’s features to manage and find suppliers. Sign up as a restaurant today and witness how our SaaS software can help with your restaurant’s success. If you operate a specialized or broadline distribution business, you can schedule a demo to see BlueCart’s multiple features for wholesale sales and automation.