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Implementing Service Charges at your Restaurant

Cue the Accountant hosted another successful Restaurant Owners Discussion Group on Wednesday, July 31st at The Lexington restaurant in St. Paul. Many thanks to The Lexington for hosting our group!

Our main topic focused on the implementation of a Service Charge at a restaurant, and several restaurant owners who joined us shared their story of implementation. Restaurants have experienced rising minimum wage costs in Minneapolis and St. Paul, and the shortage of Line and Prep Cooks in this market (and nationally) continues to be an issue. Twin Cities restaurant owners continue to monitor the increase in wages on both the East and West Coasts, and how cities there are handling it through increased menu prices and the implementation of Service Charges.

One restaurant, Birchwood Cafe, even eliminated tipping at their restaurant, and traded it for a 15% Service Charge line. The difference in revenue is to provide their entire staff - Back of House included - with a wage increase.

Through our discussions, we learned that the resounding factor that determined success in Service Charge implementations was communication with staff. Ensuring the restaurant staff - who are the voices that customers will consult with questions - understands and gets behind the Service Charge implementation increases the likelihood of a smooth transition.

Because of the rules surrounding the verbiage required to inform customers of Service Charges, it is not difficult to find the restaurants that have employed Service Charges as a way to raise revenue and offset the rising minimum wage, the health insurance coverage mandate, and the requirements in Minneapolis and St. Paul to give employees time off for Sick and Safe leave. All of these factors improve our workforce, for sure, but also come at a real cost to each restaurant's bottom line. And to be clear: Restaurants have to be profitable to exist.

Here are the rules regarding verbiage for Service Charges:

Minn. Stat 177.23, Subd. 9:
Minnesota law defines “gratuities” as monetary contributions received directly or indirectly by an employee from a guest, patron or customer for services rendered and includes an obligatory charge assessed to customers, which might reasonably be construed as payment for personal services rendered by an employee, and for which no clear and conspicuous notice is given by the employer to the customer that the charge is not the property of the employee.
MN Administrative Rule 5200-0080, Subp. 4b:
Clear and conspicuous notice that the obligatory charge is not a gratuity is notice clearly printed, stamped or written in bold type on the menu, placard, the front of the statement of charges, or other printed material given to the customer. Type which is at least 18-point (1/4 inch) on the placard, or 9-point (1/8 inch) or larger on all other notices is clear and conspicuous.
MN Administrative Rule 5200-0080, Subp. 8:
When more than one direct service employee provides direct service to a customer in a given situation such as banquets, money presented by customers as a gratuity and divided among the direct service employees is not a violation.
US Department of Labor, Fact Sheet #15: Tipped Employees Under the FLSA:
A compulsory charge for service, for example, 15 percent of the bill, is not a tip. Such charges are part of the employer’s gross receipts.

Of interest during a discussion regarding Service Charges is which restaurants in the Twin Cities have implemented them. Here is an updated list of the restaurants that have implemented Service Charges, the rate used, and the description provided to customers as required by the Minnesota Statute. Please note: if there's a restaurant not listed here that you know has implemented a Service Charge, please feel free to comment.


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