Do Service Charges Differ Between Businesses?

Yes, businesses can choose to enforce different policies regarding service charges depending on what makes the most sense for their business model. Businesses can also choose not to use service charges at all. A service charge in restaurants is individualized, and there’s no one-size-fits-all approach. 

How Are Restaurant Employees Compensated In a Service Charge Model?

Money that’s collected as a service charge is added to employees’ paychecks on top of hourly wages. 

Can a Restaurant Charge a Gratitude Fee?

Yes, but it’s essentially just giving a service charge a different name. The IRS considers automatic gratuity the same thing as a service charge, so businesses have to treat it as the same thing in terms of payment and taxes. 

Are Restaurant Service Charges Taxable?

Yes, because the IRS considers service charges as non-tipped wages, which are taxable. When it comes to a service fee, restaurant owners are responsible for handling them correctly and legally. 

About the Authors

Rebecca Riddle

Written by: Rebecca Riddle

Hospitality Writer

I have years of experience working in restaurants as well as writing about them. From restaurant financing, to hospitality technology, to the exciting worlds of food and beverage, I know hospitality inside and out.

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Kal Salem

Fact-Checked by: Kal Salem

MA Accounting - Arizona State University

A CPA and finance professional working with small businesses to educate owners and grow alongside their businesses. Kal started his career in public accounting supporting SEC, regulatory, and both internal and external audits. He holds a Masters in Accounting and a BS in Supply Chain Management. Owner at Salem CPA...

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