When a friend who eats out as much as I do, as a food writer, texted me a picture of a restaurant menu service charge notice with the question “What does this mean?” I knew we had hit a tipping point—pun begrudgingly intended.

The elimination of tip credits at the beginning of this year effectively bumped minimum wage for most restaurant servers up around three dollars. This in turn pushed many restaurant owners to begin charging customers a service fee—and pushed diners into bewilderment about what these statements on their menus mean, where that money goes, and whether they need to tip in addition to the service fee.

Seattle Minimum Wage

• 2024 minimum wage for tipped workers at small businesses: $17.25
• 2024 minimum wage for untipped workers: $19.97
• 2025 minimum wage for everyone: $20.76

By the Law

For many restaurants, tipped employees are already the highest earners, so the higher minimum wage actually tightens the purse strings for the lowest-paid employees (usually kitchen staff). With service fees, restaurants can disperse that money among all staff and/or operating costs.

Tips

• Fully voluntary.
• Must go to the tipped employee, not employer.
• Tipped employees can share tips with untipped workers like cooks and 
  dishwashers through tip-pooling, but not with management.

Both 

• Cannot be used to meet the required minimum wage.

Service Charges

• Automatically added to the customer’s bill
• Service charge and its distribution must be disclosed on both the menu and receipt.
• Any portion not clearly specified on menu must go to employee providing service, but management can distribute the portion they “retain” at their discretion.*

*Why is the restaurant keeping the entire service fee?

This phrase shields restaurants from potential lawsuits—regardless of actual distribution—according to lawyers working on both sides of the issue. “We don’t see [this phrase] in our practice, because [there’s] nothing we can do in that situation,” says lawyer Hardeep Rekhi, who specializes in individual employee rights and class action wage litigation. Restaurants that publish more precise numbers need to be able to precisely track that split, down to the number of minutes someone was or was not on a break.

Class action lawsuit settlements involving service fee disclosures distributing money to the team:

• Tom Douglas Restaurants $2.4 million
• Canlis $1.45 million

Served!

The bar and restaurant industry had about 260 investigations into violations of wage theft or paid sick and safe time in the last 10 years by the Seattle Office of Labor Standards, almost 1/3 of investigations in those categories.

Why don’t they just raise prices?

Still, some folks are trying an all-inclusive approach.

Leading the Way

Tip-free, service charge–free restaurants

• Windy City Pie: “We have updated our menu prices and staff compensation policy so that the full cost of your order is reflected in our prices without additional charges.”
• Seawolf Bakery
• Off Alley: “Our prices reflect a fair living wage for all of our staff, creating more equity for all staff members regardless of position.”
• Shikorina
• Molly Moon’s: “We think tipping is problematic and in many cases inequitable, as it creates unstable income.”
• Fuel Coffee & Books
• Tailwind Cafe: “We believe that by removing [tipping] we can create a more transparent and honest experience for our customers and a better environment for employees.”
• Flying Lion Brewing
• Ada’s Technical Books & Café: “Tipping has a sexist, classist, and racist history.”
• Distant Worlds Coffeehouse
• Respite Wine Bar
• Central Cinema