The hospitality industry is evolving in Washington and Oregon, as it is across the country. With recent legislation at the federal, state and city level affecting minimum wage, tip-pooling practices, sick leave and predictive scheduling, it is hard to keep up with all the new rules and terms. When the Seattle City Council voted for a $15 minimum wage in 2015, we looked at a variety of ways to address the changing labor market. When the 9th Circuit Court eliminated Tip Pooling in February 2016 and the Seattle City Council enacted new scheduling legislation in 2016, our team knew we would need to change our model in order to compete in a tight labor market. We looked at different models, weighing the pros and cons, and landed on a service charge. This ensures that our team is well compensated, helps us continue to attract top talent, ensures that our guests continue to receive an outstanding experience, and that our company is well positioned for the future.
A growing number of restaurateurs are experimenting with new ways of doing business, and there is no one right answer. In April 2016, our restaurants began moving to a 20% service charge model. With all of the changes in the industry, there have been many explanations and terms used that can be confusing. Here are some definitions to help break it down:
Glossary of Terms:
Service Charge: A service charge is a set percentage added to every guest check. The total amount of the service charge is the property of the restaurant which helps pay for labor and benefits for all employees. The service team is paid an hourly wage and a commission (see graphic).
Gratuity: A gratuity, or tip, is money paid for service -in addition to the check. Tips are usually shared between the server, bar and support staff, including bussers and hostesses.
Hospitality Included: Some restaurants choose to raise menu prices and eliminate tips and service charge to offset the increases in labor costs.
Tip-Pooling: A valid tip pooling practice involves the collection of all tips to be put into one large “pool.” Tips are then redistributed among a larger group of employees. In theory, tip pooling ensures that all staff members are fairly compensated for their work, especially when there are multiple services being rendered and single points of payment. Only usual and customarily tipped employees can be part of the pool. Employees can’t be required to share their tips with employees who don’t usually receive their own tips, like dishwashers or cooks.
Tip Credit: Under federal law and in 43 states, employers may pay tipped employees less than the minimum wage, as long as employees receive enough in tips to make up the difference. This is called a “tip credit.” The credit itself is the amount the employer doesn’t have to pay, so the applicable minimum wage (federal or state) less the tip credit is the least the employer can pay per hour. If an employee does not earn enough in tips during a given shift to earn the applicable minimum wage, the employer has to pay the difference. Since 1992, Washington and Oregon have not allowed tip credit.
Frequently Asked Questions:
In the traditional tipping model, do servers keep all their tips?
No, there has always been a practice of tip pooling where the tip amount is distributed between the server, bar staff and support staff including bussers and hostesses.
How are employees compensated in a service charge model?
Each member of the sales team is paid an hourly wage and a commission. Some restaurants, including El Gaucho, include the ability for guests to leave an additional gratuity which goes directly to the server.
Are service charges considered wages, tips, or a benefit for employees?
A service charge is the property of the restaurant, and the restaurant then pays hourly rates, commissions, and revenue share to employees, which are subject to wage-related taxes and are reported by the employer to the IRS.
What are the benefits of a service charge model?
Employees: Our team is made up of professionals who have made hospitality their career -they have families, are homeowners, and active members of their community. The service charge model, combined with the ability for guests to leave additional gratuity for excellent service, ensures a sustainable model for our team to continue to receive excellent compensation and benefits. For example, our servers are paid a 15% commission plus an hourly wage, which results in $45-75 hourly pay, plus benefits.
The Company: El Gaucho has been successfully using a service charge model for Private Dining business for over 25 years, therefore we already have extensive experience with this model.
The Government: Because taxes are paid on the service charge, state and local governments benefit from increased tax revenue. $15 million gross sales creates $3 million in service charges: $300K goes to Washington State sales tax, and $60K goes to B&O taxes.
Why don’t the percentages add up to 100%?
The restaurant now pays the credit card fees (averages 3-4%), whereas in the old model the servers paid those fees; additional .5% B&O tax and the loss of the FICA tip credit, we actually pay slightly more than 1%.
• Restaurant Hospitality Magazine story about compensation models
• Chad’s blog on the El Gaucho service charge announcement
Can the service charge come out of the remaining balance of a gift certificate?
Thank you for your email. If it’s a cash gift card, then yes, which includes CW-$100 cards. If it’s a Revelers card, it will not. Please let us know if you have further questions. Thank you!
Your explanation covers how the system works, but gives no indication of proper gratuity, if any, above the meal price and service charge that the server expects as part of their income in a competitive environment. Do I assume the employee is fairly compensated if I leave no additional gratuity, or are they looking for 20%on top of 20%? 40% above meal price is pretty significant, and leaves me wondering if I wish to participate. Success means the company, the employee and the consumer all are happy at end of day.
Our team is committed to providing excellent service to every guest, every time. We stand behind what we do. If a guest is not delighted – we will make it right. The 20% percentage is already in line with what most of our guests were leaving as a gratuity. Additional gratuities are accepted if the server goes above and beyond, but they are completely optional and not expected or required. In any service charge model, the service charge goes to the company first and is then distributed to employees in a variety of ways. At Fire & Vine Hospitality, we designed a commission model where our servers receive 15% of every guest check, as well as any additional, optional gratuity only if the guest feels that they went above and beyond in their service. We tracked these numbers carefully throughout the last few years and have been transparent with our team. As a result of this model, our service team averages 9% higher hourly wages than they did before we moved to this model. The average hourly wage for a Fire & Vine Hospitality server is now greater than $50 an hour.
If cash is left for the server and support team, do they get to actually have that or is that also retained and considered property of El Gaucho?
Each member of the service team is paid an hourly wage and a commission. Some restaurants, including Fire & Vine Hospitality restaurants, include the ability for guests to leave an additional gratuity which goes directly to the server. This is true regardless of the method of payment.
What if I get bad service do I still have to pay the 20%?
Our team is committed to providing excellent service to every guest, every time. We stand behind what we do. If a guest is not delighted – we will make it right. The 20% percentage is already in line with what most of our guests were leaving as a gratuity. Additional gratuities are accepted if the server goes above and beyond but they are completely optional and not expected or required.
is a service charge towards the employees as a tip? because 20% of 100 is 20 dollars plus if the customers wants to tip maybe 20 dollars seems like double tip
We know that excellent service is provided by a team – not just one person. In the traditional tipping model, servers did not receive the full tip. They were required to divide that amount among the bar staff and support staff including bussers and hostesses and the amount was impossible to predict. In a Service Charge model, each member of the service team is paid an hourly wage and a commission. Some restaurants, including Fire & Vine Hospitality restaurants, include the ability for guests to leave an additional gratuity which goes directly to the server. Additional gratuities are accepted, but not expected or required.
My Husband and I were not aware that a “service charge” was added to the bill so we left a hundred and Fifty dollar tip on our meal for us and 2 friends,however since learning of this, we would have left a smaller tip we always tip in cash over 20% But I feel a tip almost equal to the price of our meals was excessive.You need to let customers know that this is your policy as usually a gratuity is not added automatically unless you have a large group. I really feel stupid and taken advantage of. Julie Zirckel Visited 09/09/ 2021 Reservation under Randy Mann 5:15 Bellevue El Gauchos
Julie, we apologize for the delayed response to your note. We had some technical difficulties and are just now seeing this. Our team is committed to providing excellent service to every guest, every time. Additional gratuities are accepted if the server goes above and beyond but they are completely optional and not expected and our team is required to be completely transparent about this. Our El Gaucho Bellevue team will reach out to you to correct this.
How come you don’t just raise your prices 20% and let customers know its due to increased costs and fair compensation of staff? When I pay a 20% service charge AND a 20% tip, my meal essentially becomes 40% more expensive than menu price. Which is a very significant difference. Not to mention arguably deceptive. I would also note that when I see a 20% “service charge” at restaurants I automatically assume that money is going to staff; that it’s the “tip”. So do the vast majority of other people.
Fire & Vine Hospitality chose to reinvent our compensation model and create something new that would benefit our talented team, allow us to continue to provide an exceptional guest experience and ensure that our company could endure and thrive. Whenever we make any decision, we always ask ourselves whether it accomplishes each of these priorities. After consulting with our team and our guests, we chose to lead, rather than react, to forces beyond our control including food and labor costs that change frequently.
After several roundtable meetings with guest and employees, our team came up with a model that accomplished each of the goals described above and in 2016, the company began implementing a 20% service charge in each of our Pacific Northwest area restaurants.
The service charge model means that our whole team benefits from delighting our guests from the moment they arrive until they leave us for the night. Our team is made up of professionals who have made hospitality their career and they count on doing well here because they have families, they are homeowners, they are active members of their community. We implemented this model in Seattle a few years ago so we have extensive data which tells us that it is working well for our staff, our guests and our company.
Clearly, the 20% service charge is controversial and to some degree based on your level of understanding of the industry. As. A recently retired 40 plus industry veteran, of a 100 unit plus chain, chef , VP of Ops, and SVP I have discussed the issue in-depth. Regardless of which side you sit on it is difficult.
Not having been in the segment of the industry that served wine a ponderable to me is Wine service selection. I find that the 20% service charge changes my per perspective on wine selection or even choice between glass versus bottle.
The choice between a $100 or $300 with no required change in service is questionable and does it change the overall dining experience?
Keep in mind, I am in Walla Walla eating at one of the best restaurants in the area, picking up wine to add to my 500 bottle cellar. Some what contradictory as it is…it not really about money but on top of the mandatory 20% service charge I am potentially penalized for my wine selection.
Personally, I typically bring wine ( not in wine country) but have always subtracted wine and the tipped 20% plus on meals and cocktails.
All said, not sure I have the answer but would wonder what the analytic’s say regarding wine sales.
Just a different perspective…see you again soon. I see you are part of the El Gaucho group, does that include Portland? Saw the 20% charge there as well.
Recently there, took a Horsepower, shared a glass with the wine steward, who called me at home to thank me because he missed thanking me before I left. Awesome.
Thank you so much for joining us at Walla Walla Steak Co. and El Gaucho Portland, and for sharing your thoughts below. We appreciate the opportunity to respond and if you would like to continue the conversation, please send us a note at email@example.com.
As you know, a service charge is a set percentage added to every guest check and it would not be feasible to have it fluctuate based on factors like the dish ordered, the size of the party or the wine or cocktails that are chosen by each guest. For instance, it would not work to have one percentage for a happy hour burger and one for a steak, one for a tableside smoked Manhattan instead of a draft beer, or for a party of 2 versus a party of 6. The 20% service charge is in line with what most of our guests had been adding in the former tipping model and it ensures a sustainable and predictable way for our team to continue to receive excellent compensation and benefits.
Again, we are grateful that you visited us and hope to welcome you back again soon.
Like many of the above suggest: just increase prices 20%.
That’s a much simpler way to achieve the “sustainable and predictable” goals you’ve declared, without introducing the obviously evident confusion and consternation.
Functionally, you net out the same: the restaurant keeps that 20% increase, and customers aren’t confused about whether the service charge actually goes to the person who provided service.
If your model requires a “101”-level explanatory essay and STILL results in customer confusion, it’s too fussy of a model. Just be honest and increase your prices.
We appreciate your interest and thoughts on this. After considerable study and working with our team, we determined that the 20% service charge model works best for us. Thank you.
I’m writing this because I respect great food. My wife and I had dinner at the Seattle location 8/3/2022 for our anniversary. I had a charred rare 8oz tenderloin perfectly cooked, the services by Jimi was perfect, the atmosphere was everything you’d expect from El gauchos. My wife halibut showed up with several black grill lines, a bit unusual but nothing to be concerned about. The thing is it was not only over seasoned but as it looked the outside was dry and over cooked. No one wants to return thier dish but it should have been obvious to the expediter. As I mentioned my steak was perfect except my mouth was burning from the salt. Neither one of us wanted to say anything about it but I had to mention the over seasond fish and the cook on it. My wife ate most of it anyway. Our waiter’s comment Jimi was ‘ yes we do over season’ my question is why do that?
Thank you for reaching out and sharing your experience. Our team would like to talk with you and discuss your experience. Our general manager, Dan Perrine, will be in touch.
Just raise prices 20%!!! Then let customers know the tip is already included in the menu price. Keep it simple. This shows true transparency.
Thank you for your interest in our model. After looking at all the options available to ensure the best outcome for our team, guests and company, we determined that the 20% service charge model was the right path for us.
does el gaucho intend to have this link on the Bellevue page? I get the service charge info but do we need to know about out of network reimbursement though your group medical benefits carrier?
This link leads to the machine-readable files that are made available in response to the federal Transparency in Coverage Rule and includes negotiated service rates and out-of-network allowed amounts between health plans and healthcare providers. The machine readable files are formatted to allow researchers, regulators, and application developers to more easily access and analyze data.
Thank you for your note. It is a federal transparency law and is required to be on our website. We are going to move it to a different location on the site, however. Thank you for noticing!