What’s the Difference Between a Service Charge and a Surcharge — and Do I Have to Pay Both?

Welcome to Ask Eater, a column from Eater SF where the site’s editors answer difficult dining questions from readers and friends. Have a question for us? Email sf@eater.com.

Dear Eater SF,

While dining out recently at John’s Grill, I noticed that the menu discloses a number of confusing fees, including a 19 percent service charge for parties of five or more and a 4.95 percent surcharge “to support SF employer mandates.” The description for the service charge states that “15 percent is distributed to employees while 4 percent goes into the staff retention bonus fund.”

Now, I am fine with paying one of these surcharges, but both seem a bit much. What’s the difference and why do I have to pay both?

Sincerely,

Fee’d Up

Dear Fee’d,

It’s understandable that there might be some confusion around the various charges and fees that come with dining out these days. It’s now common for restaurants all over the country to implement “service fees” that can range from 3 to 20 percent of your bill and it’s not always clear who the money goes to in the end.

Since 2008, San Francisco in particular has required businesses with more than 20 employees to contribute toward worker health care — which has in turn spurred many restaurants to add on “S.F. Mandates” or “Healthy SF” fees to cover insurance costs. In some cases, that might mean diners pay two fees at San Francisco restaurants.

At John’s Grill, the long-running restaurant in San Francisco’s Union Square, the service charge refers to an automatic gratuity for larger parties, in this case, groups of five or more. An “automatic gratuity” is pretty standard for groups of six or more at restaurants across the country, typically totaling about 18 percent of the total bill. What’s perhaps confusing here is the use of the term “service charge” — which can be used for a range of things including the aforementioned auto gratuity for large parties, bottle service at clubs, or mandated delivery fees. Technically, an automatic gratuity is not considered a tip, at least by the IRS’s definition, but restaurants do often give this fee to employees since it’s extra work on the server to serve larger parties and the charge guarantees they aren’t short-changed.

If all the fees and service charges are confusing, one can easily point fingers at the inequitable tipping system that’s become part of the hospitality industry; service charges are now often being used to phase out tipping. What is refreshing, however, is that some restaurants are being transparent about where the charges go, and why they’re being implemented. Mexican restaurant Comal in Berkeley offers an FAQ sheet on the restaurant website that explains why the business forgoes tips in favor of a 20 percent service charge for all customers. Here, the service charge is meant to help the front- and back-of-house to be compensated more fairly and for benefits. San Francisco’s Good Good Culture Club also charges a 20 percent fee the restaurant calls an “equitable compensation fee,” which the owners say helps close pay gaps between the kitchen and servers.

Of course, there could be lingering questions about where these service charges go, especially when it’s not disclosed on the restaurant’s menu or a server doesn’t state the fee’s purpose at the start of the meal. If that’s the case, it’s perfectly acceptable to politely ask what the charges on your bill are for.