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Lawmakers want to crack down on “trash fees,” but restaurants are trying to stay out of it.
Various surcharges or fees on restaurant checks, from credit card processing to tips to “inflation,” have become increasingly popular in recent years.
Last year, 15 percent of restaurant owners added surcharges or fees to their checks because of higher costs, according to the National Restaurant Association. In the second quarter, 3.7% of restaurant transactions processed by Square included a service fee, more than double the level at the start of 2022, according to one company. recent reports from the company.
Opponents of the practice say the fees and surcharges can surprise customers, tricking them into paying more for their meals at a time when their wallets are already thin. Fed-up diners took to Reddit to compile a spreadsheet of restaurants in the following areas: Los Angeles, chicago and DC Charge hidden fees. Even the onions are swaying in practice, Post a satirical story In May, the headline was “Restaurant Checks Include 3% Surcharge, Birkin for Owner’s Sugar Baby.”
The Biden administration has broadly targeted so-called junk fees, such as undisclosed service fees for concert tickets or unexpected resort fees at check-out. This fall, the Federal Trade Commission is expected to issue a rule prohibiting companies from “charging hidden and misleading fees.”
U.S. President Biden delivers a speech on retirement security in the State Dining Room of the White House in Washington, DC, on October 31, 2023. The Biden administration is trying to crack down on so-called “junk fees” in retirement accounts through a rule proposed by the U.S. Department of Labor.
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Restaurants are trying to stay out of the Biden administration’s crosshairs. They say the surcharges and fees are necessary to keep their business afloat and to fairly compensate their employees in a competitive industry with razor-thin profit margins.
“The challenge for restaurants is that not all charges are garbage… When it comes to most charges on restaurant bills, people know what they’re paying for,” said Sean Kennedy, executive vice president of public affairs for the state. Sean Kennedy said.
combat expenses
Some customers may disagree with Kennedy.
While federal law makes it illegal for management to withhold tips from employees, mandatory service charges are the property of the restaurant. Some states, such as New York, have their own laws stating that service fees belong to the employee.
a restaurant worker in denver Say in a public comment In response to the FTC’s proposed rule, his employer described the fees it charges customers as “fairly distributed among employees.” But he was told when he was hired that the company kept 30% of the proceeds.
service charge Increases the risk of wage theft as employers may claim money was paid to workers but not distributed to them, The National Women’s Law Center writes in its public comments. Additionally, customers who pay a service charge are less likely to add an extra tip to their check, hurting workers’ incomes, the nonprofit said.
restaurant perspective
Restaurant operators argue that service fees and other surcharges help them pay their employees higher wages and provide better benefits.
When Galit, a Middle Eastern restaurant in Chicago, opened in 2019, it charged an additional 2% optional fee to cover employee medical expenses. Today, that fee is 4%, plus restaurants add a 20% service fee to every bill for hourly employees. Fees are clearly stated on their website, Resy page and menu.
Co-owner and general manager Andres Clavero, who has an accounting background, said restaurants choose this approach for a few different reasons.
“We decide where everything goes, so part of our 20 percent service fee goes to the backend,” Clavero said.
Additionally, higher menu prices could scare away customers, and diners would also have to pay higher sales taxes. Galit would also impose higher payroll taxes. Service charges are designed to address tipping issues. The practice has become increasingly controversial in recent years as research links it to sexual harassment and racial discrimination.
If these fees are built into restaurant prices, customers may choose cheaper options that don’t offer the same benefits to employees, Cravero said.
In some cases, fees can help restaurants navigate tricky legislation. For example, service charges became more common in Washington after voters approved Initiative 82, which would phase out tip wages by 2027. % or less.
Kaliwa, a Southeast Asian restaurant in Washington, D.C., said it implemented an 8% surcharge to combat rising labor and operating costs.
“Our first priority is to be transparent with our guests and ensure they understand the reasoning behind these charges,” Kaliwa Director Peter Demetri said.
For Ming-Tai Huh, who heads Square’s restaurant business and is a partner at Cambridge Street Hospitality Group, service fees help some of his Boston restaurants pay more to chefs and dishwashers.
Massachusetts law prohibits sharing server tips with kitchen staff. Thanks to the higher wages that come with the surcharge, more restaurant company employees are opting into their health care plans.
Hsu said service charges are easier to implement at the company’s fine-dining restaurants. But CSHG eventually pulled it from the fast-casual restaurant due to customer backlash. Instead, the company simply raised menu prices.
Lobbyists and Legislators
At the state level, restaurants have had some success in fighting their way out of trash fees.
In California, last-minute legislation excludes bars and restaurants, as well as grocery stores and grocery delivery services, from having to list mandatory fees charged to customers. As a result, the industry is exempt from the sweeping anti-spam fee law that came into effect on July 1.
“We believe that allowing many restaurants that have used automatic gratuity in lieu of gratuity for decades (which is more fair and equitable), as well as the recent increase in service charges to help offset costs such as San Francisco’s Medicare Ordinance, will make it possible for restaurants to continue to support payroll fair and contribute to workers’ health care,” the Golden Gate Restaurant Association wrote in a statement after the legislation passed.
Close-up of receipt showing convenience fee charged in addition to food charges, Oakland, California, June 12, 2024.
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The National Restaurant Association believes eliminating the fees would lead to customer confusion, higher prices, less transparency and costly compliance. The trade group estimates the new menu alone will cost each restaurant more than $4,800.
Exceptions to the rules
Even restaurant operators admit that not all fees and surcharges are worthy of coverage.
Cravero objects to restaurants still charging COVID-19 surcharges more than four years after the pandemic temporarily closed their dining rooms.
“To me, it’s a cry for help. It’s not being completely open and honest about where your money is going,” he said.
The National Restaurant Association, for its part, said it is pushing the FTC to protect three fees that restaurants commonly charge: large party fees, delivery fees and credit card processing fees.
Kennedy said trade groups are working to help operators maintain slim margins of 3% to 5%, but that is difficult because of rising operating costs. For example, Kennedy said credit card swipe fees have doubled in the past decade and are now the third-highest cost for restaurants.
“What we really instill in our members is to be as open, transparent and open as possible so customers know exactly what they’re getting when they sit down to dine at their favorite restaurant,” Kennedy said.
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