How Do New Restaurant Service Fees Work, and Should We Tip?

A guide to your bill and tipping as restaurants navigate the COVID-19 world
A meal from Young Joni in Minneapolis now comes with a new service fee.

Photo by TJ Turner

Welcome to a new world for restaurants in the pandemic era. Service charges are common, and customers are confused: Do I tip? Do I not? What’s the money for?

Across Minnesota, restaurant expenses have gone up this year due to COVID-19. At the same time, the opportunity for revenue has gone down because of limited capacity restrictions. It also costs more for all those containers for curbside takeout, and to buy additional PPE for employees, including gloves, thermometers, and sanitizing equipment. So restaurants have had to figure out how to recapture some of that money.

I’ve asked many local restaurants about their new policies as they’ve opened up after COVID-19 shutdowns. While each restaurant has a specific policy, there are some common threads.

The New Service Fee on Your Bill Is Not a Tip

You’ll see this language at restaurants, and it’s important to know they’re saying this because of Minnesota laws. It’s the law in Minnesota that tips go directly to the service member, and the ownership of restaurants cannot mandate that you pool tips. Employees can decide to do that themselves, but it can’t be a condition of employment. This is why notifications on menus and table-top signs say “this fee is not a gratuity.” It’s so you know the money belongs to the company, not to your server. It’s not so you feel guilty and still tip the server.

What Happens With the Money?

If you ask your server what happens to the money, you’re probably going to get a bit of a mess of an answer. It’s sort of like asking what they’re doing with the $14 they’re charging you for a cheeseburger. It’s their money. Generally speaking it’s intended to provide all employees with a higher base pay. COVID-19 exposed something that many restaurants had been struggling with: servers get minimum wage but can make real money off of tips, while cooks and dishwashers don’t have access to those tips. A diner’s experience is always shaped by the whole team, but the tip by law goes only to the server. 

“We’ve been wanting to switch to the ‘flat fee’ structure for quite some time and in my opinion this became one of the silver linings of COVID, as it has given us the opportunity to just go for it,” says Jami Olson, the owner of Centro/Popol Vuh in Northeast Minneapolis. 20% is the fee at Centro, which has increased base wages of servers and for the back-of-house. “It also provides a little extra cushion during pandemic circumstances. We can only seat 50% of our restaurant, which means our reality just got twice as expensive!” says Olson.

At Rock Elm Tavern in Plymouth and Maple Grove as well as Holman’s Table in St. Paul they’re also charging a 20% dine-in fee, 10% for takeout. Most goes to higher wages but “a small portion is going towards our benefits (health, dental, vision, retirement, Serving Those Serving EAP), and increased sanitation measures,” says Ally Restaurant’s marketing director Nikki Wallace.

You Can Still Tip, Sometimes

Most, but not all, places are still providing a tip line on your bill. And this provides a real conundrum for the guest. If I’m paying a 15-20% service fee, am I supposed to tip my usual 18-20%? Then you’re potentially paying 40% on top of the price for the food.

Centro has left the tip line. “We thought this through and it’s definitely something that could change. I feel, especially given the circumstances, people still want to leave a little something extra and I didn’t want to take that option away from them,” says Olson. Her staff has received what she calls a “substantial raise,” so she doesn’t want people to feel obligated to tip. 

“It’s just another ‘damned if you do and damned if you don’t’ situation to add to the list of restaurant struggles right now. If we’re transparent about the fee, we feel good about leaving the tip line in,” she says.

Rock Elm and Holman’s also are leaving the tip line in. “Guests can tip if they feel inclined to. If they provide a gratuity, that money goes solely to the person who served them directly (as per state law),” says Wallace.

But Many Places are No-Tip

Surly Brewing does not want you to tip. They’ve added a 15% service charge to everything. “The service charge model aims to create a sustainable, equitable work environment for the hospitality industry,” says Tiffany Jackson, Surly’s PR & communications manager. “This is a no-tip model; there is no tip line on receipts. If guests receive exceptional service (and they will), we encourage them to let us know. Thank you cards get saved for years,” she says. 

Hello Pizza added a 15% surcharge to takeaway orders, with no tipping. For delivery, they charge a $5 delivery fee and offer guests the opportunity to tip their driver. All of it is up-in-the air to see what works for the company and what guests say. “We have not made any decisions yet regarding surcharges and wage structures for when our dining rooms reopen, but are remaining open to possibilities,” says Rachael Crew, marketing manager for Ann Kim’s Hello Pizza, Pizzeria Lola, and Young Joni restaurants.

Right now there’s an 18% surcharge to every order at Young Joni and Pizzeria Lola for “fair” wages and benefits for the entire team. “We are paying both the front and back of the house an equitable hourly wage. We do not prompt guests for tips when ordering or picking up,” says Crew.

Same deal at Lat14 in Golden Valley, where owner Ann Ahmed has added an 18% surcharge to all orders and taken away the tip line. “Lat 14 will be a NO TIPPING operation.” Brasa also has an 18% “wellness surcharge to support fair wages and benefits,” and is a no-tipping operation.

Hai Hai and Hola Arepa now have 20% service charges for dine-in orders, 15% for takeout, and they’ve taken off the tip line.

Mike Rakun’s spots, Mill Valley Kitchen and Benedict’s, 18% is the service charge and there’s no tip line. “In return, we’re paying all the servers a higher hourly wage,” Rakun says. “Trying to be tip-free,” he says, “removing the line takes away any obligation and no awkward feeling leaving the tip line blank.”

Targeted Fees and Creative Approaches

Birchwood Cafe has added a 15% “Staff Support Fund Service Charge.” They eliminated tipping last summer in lieu of a “Fair Wage Share” charge. Now they’re adding a SSF fee to help provide free hot meals and groceries for their laid-off staff. That money also goes to staying open and continuing to pay their small staff their pre-COVID wages and benefits. ”Every single restaurant owner is struggling right now. COVID-19 and upcoming minimum wage hikes on the way to $15/hour are forcing us all to reevaluate old pay structures and find ways to operate sustainably in the face of a very uncertain future,” says owner Tracy Singleton. 

Broders’ Restaurants is adding a 15% “Service & Equity Charge” at all restaurants. They have upended the traditional compensation model. Their fee helps support a base pay of $16/hour for all employees, people get more money based on tenure and leadership positions. And this is interesting: 5% of all weekly sales will be distributed to all hourly team members. So everyone gets a piece of the action. “This is the first step we are taking as a business and a family in reckoning with the need to address systemic inequalities within our industry,” according to the new Broders’ policy.

Estelle St. Paul is charging a 20% service fee and still creating incentives for customer-facing positions. “Servers and bar staff earn their base wage as before, and earn a commission based on their sales. This creates an incentive for them to upsell wine, or stay late and take that extra table, for example,” said Peter Sebastian, Estelle CEO and co-owner.  Bartenders get a percentage based on liquor sold by servers (replacing the server tip-out) and support staff earn a percentage of total revenue from the restaurant. The kitchen team also gets a percentage commission based on total food sales. “For the first time in our experience, the line cooks, dishwasher, etc. will be incentivized to be busy,” said Sebastian. The reality: Estelle servers may see their pay (which was on average in the low $30s/hour) drop by about $3/hr.

Why Not Just Raise Prices?

Ah the classic question. Ideally we’d pay the real cost for our food – inclusive of rent, utilities, profit, and labor costs. However, because the tipping model has been around so long, we’ve gotten used to what we think food should cost. We also can easily compare: pizza to pizza, cheeseburger to cheeseburger. If some restaurants raise prices 20% to make their business run more like, well, a business, it only works if everyone raises prices 20%. And that’s not going to happen. If a place you sort of like took their $14 cheeseburger to $17, would you be ok with that? (I would! I’m paying $17 with the tip anyway!) Most likely would not.

What Should You Do?

After all these years of tipping, it’s tough to not give a server a tip. And I’m not sure what you should do. The reality is, if there’s a 20% fee and you see a tip line, I would personally not tip another 20% on top of it. First of all it makes eating out unaffordable for many of us. Second, it ruins the restaurant’s goal of trying to have more equitable wages for all employees. If I had outstanding service, I would be more tempted to add a round dollar amount. So if I had a $50 meal, my bill is $60, maybe I’d drop an extra $5. I don’t know— it’s tricky! What would you do? Leave your thoughts in the comments section below.

Plus: What It’s Like Eating at a Restaurant Patio During COVID-19