Service charges in the food and beverage industry to include restaurants, hotels and catering operations have been around for quite some time. However, the amounts and percentages would vary to some degree as deemed appropriate by the business who would charge them. The origin of the service charge was initially based on the gratuity or tip that patrons would customarily give directly to wait staff, servers, cocktail waitresses, and bartenders for giving good service. For the customer, the socially established, acceptable and common practice is to tip or give a gratuity for said service in a range anywhere from 10-20% or more should the customer wish. The range typically took into consideration and expressed their satisfaction of the service provided with 10% being somewhat satisfied to 20% being highly satisfied. 15% would indicate that they were satisfied with the service that was provided by their server. Besides indicating their satisfaction the tip was a way of expressing their gratitude hence the name gratuity.

​

To make sure we also understand why tipping or giving a gratuity to your server became common practice and even to the point of being expected was that it is common knowledge that the service staff is usually only paid minimum wage. Interestingly, the custom of tipping gave rise to employers justified in not having to pay higher wages while also incentivizing the service staff to provide excellent service. This model was a win/win/win for everyone as the possibility of receiving a good tip would help ensure the customer would get good service while rewarding those on the service staff that were able to give it. In addition and most importantly, good service would enhance the reputation of the establishment which would help ensure repeat business and the ultimate success for the restaurant or hotel chain.

​

The service charge billed to customers was decided on and instituted exclusively for parties of 8 or more in restaurants as a result of the frequency of customers not leaving a satisfactory tip for the servers because of the costly bill presented at the end of the meal. When presented the bill, which was very expensive, the guest or customers who would be paying for or covering the amount of the meal for the party would not be very enthusiastic about leaving a percentage tip that would necessarily correspond to the level of service given. It stands to reason because when the check is very high so to can be the gratuity. It was for this reason that in the food and beverage industry that an additional service charge was established to ensure that an adequate gratuity or tip was left for the wait staff. The only difference between a gratuity/tip and a service charge is that a gratuity is given directly to the server and paid out typically on the same day, whereas the service charge is paid to the establishment who in turn pay it out to the server on their paychecks.

​

To be fair to the customer the service charge amount was originally deemed to be around 15%. This amount was the middle of 10-20% and was therefore considered acceptable and became standard. The standard for the hotel industry and banquet events, which obviously were large parties, was 18%. The hotel would distribute 15% to the banquet servers and take 3% for the house. 15% was expected based on common practice and the 3% was to cover administrative costs for distributing the service charge to the banquet staff. It is also worth noting that clients and customers expect the gratuities, tips and service charges to be given whole or in part to the service staff directly responsible for providing their guests with the service of the ordered food and beverages at their table. It was not for kitchen staff, especially managers or salespeople. It was implied that these individuals were compensated appropriately by the ownership of the restaurant or hotel establishment based on the price of the food and beverage purchased. It is common knowledge that managers are salaried individuals and are not expected nor should except tips or gratuities of any kind. Sales people including catering managers may be given commissions based on sales but these commissions are paid for as a percentage of the sales of food and beverage only and not the service charges that are imposed on the clients.

​

The other departments in banquets, namely the set up staff, also commonly known as convention services or houseman, who set up chairs, tables and linen are often given a small percentage of the gratuity pool taken from the house percentage as the hotel sees fit. In addition, kitchen staff who the hotel establishment feels should get some of the tip pool are to be given any percentage deemed appropriate from the house percentage. You may think that sharing 3% would be insufficient. You would be correct. So over the years, based on employees demands coupled with the hotel establishment motives for profit, they sought to derive more revenue.

    

This was accomplished in two ways. The service industry to include hotels and catering operations were successful in arguing that service charges are not considered a gratuity or tip. According to this, they also concluded that they could determine how to distribute the service charge as they see fit. Based on this characterization, catering operations and hotel establishments proceeded to create their own pay schemes so they could take a share of the lucrative gratuity pool/service charges as they saw fit. Many catering companies resort to paying staff a fixed hourly rate and keep the other portion for their own benefit. To get more revenue for Hotel establishments or to give to other departments, managers and salespeople they give a smaller portion to the serving staff. Sometimes it is less than 50% of the total service charge billed to the customer. The only requirement is to state on the bill or contracts that the service charge is not a gratuity and indicate in some manner how the charge is distributed without having to give specifics. This disclosure is written in the small black print on the bottom of the contracts.

​

Unfortunately, clients have no say in the matter and most often do not read the fine print. Regardless, simply making a statement that a service charge is not a gratuity does not necessarily make it so. As discussed in great detail above where the service charge originated it stands to reason that most clients and customers assume that the service charge is distributed to the service staff and certainly not to managers and salespeople. The only reason that a service charge came into existence was its relationship to tipping or leaving a gratuity. For this fact alone it stands to reason that the service charges billed to guests and customers should be distributed to the servers who actually serve the food and beverage to the tables of the guests and customers they serve.