What's the Difference Between a Restaurant Service Charge and a Tip?

credit card machine and phone — Service charges are becoming more common on restaurant bills but what do they cover? AsiaVision/Getty Images

It's a baffling time to eat out. Tipping used to be reserved for sit-down restaurants with waitstaffs, bussers and other workers whose livelihood was based in large part on tips.

But today, not only is tipping an option everywhere — does the kid handing you a coffee at the drive-thru window deserve 10 percent, 15 percent or 20 percent? — but an increasing number of restaurants are also adding a service charge or service fee to the bill.

What the heck is a service charge? Does any of it go to the workers? And if customers are charged 18 percent automatically, are we still expected to tip on top of this mysterious fee? Let's get to the bottom of it.

Blame the Pandemic

Between mandatory shutdowns and social distancing rules, the COVID-19 pandemic almost killed the restaurant industry. To stay afloat, restaurants turned to online ordering and curbside pickup, and customers were encouraged to tip generously in support of struggling food service workers.

Now that restaurants, bars and coffee shops have reopened, the tipping game hasn't returned to normal. Nearly all establishments — including taco trucks, doughnut shops and other fast-food restaurants — now have a touchscreen tablet payment system and customers are routinely asked if they want to add a tip to their purchase.

Many of us feel compelled to do it, even if we grumble about it. As of late 2022, 48 percent of purchases at fast-food restaurants and coffee shops included a tip compared with just 11 percent before the pandemic, according to CNN, citing data from Toast, a restaurant management software company.

Some restaurants that have switched to the touchscreen tablets now display a bold "tip" option when the credit card is run, even if a service charge was included, which some customers find baffling. So, what is the difference between a tip and a service charge?

What Are Service Charges For?

The tip jar is becoming a relic as touchscreens include tip requests with every transaction. Catherine McQueen/Getty Images

Service charges are separate and distinct from tips. A tip, by law, doesn't have a set percentage and isn't compulsory. It's a gratuity freely given by the customer to acknowledge the service of the "front of house" workers only, which include the host, waitstaff, bussers and bar staff, who generally split all tips.

In contrast to a tip, a service charge is a fixed percentage that is compulsory — the customer has no say in how much to pay. Service charges range from 3 to 20 percent, according to Vox, and are automatically added to the bill, similar to sales tax.

From a restaurant customer's perspective, the biggest difference between service charges and tips is that we know where our tips are going (to the "front of house" workers), whereas we often have zero idea what a "service charge" is for and where the money is going.

Restaurants may have plenty of legitimate reasons for charging a service fee, including:

to supplement the wages of "back of house" workers like the kitchen staff who don't receive tips
to pay for health insurance and other employee benefits
to cover the hidden costs of running a restaurant, like credit card fees and delivery charges from third-party apps
to account for inflation; instead of raising the price of menu items, they charge a service fee to recoup the higher costs of ingredients
as an automatic gratuity for a large dining party

But here's where things get blurry. There's no law saying that service charges need to be used in any particular way. A service charge may go partially to the server as tip and partially toward some of the other items we mentioned. It's also possible for the owners of a restaurant to pocket the entire service fee and not pass any of it along to workers.

Should You Tip on Top of a Service Charge?

Here's the issue. Front-of-house restaurant workers depend on tips as part of their wages. The Federal minimum wage for waitstaff and other front-of-house workers is $2.13 an hour (though many states require a higher level). The expectation is that they will make the rest of their wages in tips.

When a customer sees a service charge on the bill, the temptation is to subtract that from their usual 15 percent or 20 percent tip. Or if it's a large dining party and a service fee of 18 percent has been already been added to the bill, the customer may think that is the tip. But if none of that service charge is going to the actual workers, then you are robbing your server or the busser of their hard-earned pay.

The only solution is to be informed. If the bill doesn't explain what the service charge is for, ask the restaurant's manager or owner. (The waitstaff should know, but it can also put them in an awkward position.) If it's clear that the service charge will be used to cover administrative fees or other non-worker expenses, then leave a full tip based on the price of the meal without the service charge.

If the service charge will be used in a way that directly benefits the restaurant workers, then you can decide whether to add an additional tip./\r\n/