SAN DIEGO — You may have seen it on your receipt: a "service charge."
Service charges are fees beyond the gratuity or a tip. According to a new study, restaurants are twice as likely to add on a service fee to your bill.
Labor costs, inflation
More restaurants are adding service charges according to a new study by Square. It found that 3.7% of food and drink transactions have added charges. The figure is up from just 1% of restaurants having added fees three years ago.
"Now with increasing labor costs, with inflation, profit margins are shrinking even further. with many businesses it means they've shrunk down to almost zero," said Ira Vouk from San Diego State University's School of Hospitality and Tourism Management.
She says the hotel industry has used price adjustment for years to stay profitable and the restaurant industry is now working to catch up.
"Hotels constantly fluctuate their prices according with demand shifts and that allows them to stay profitable when needed because they have the right tools to stay profitable and stay in business," she said.
Vouk says restaurants are likely using the money from service fees to pay their staff. You might see some restaurants call them a kitchen fee or say it's used for employee health insurance.
"Food cost is so high, labor is so high and we live in a really expensive state so I definitely understand that," said Jesse Felix.
He says he's worked in the restaurant industry. While he understands why the fees are being charged, he says it sometimes steers him away.
"Sometimes I wanna eat out but I'm like 'oh I'm gonna have to tip and have a service fee. Let's just order pizza'," he said.
A new California law went into effect July 1 that banned hidden fees. Restaurants however are exempt from the law as long as they clearly tell the customer. This could be done by disclosing the service fee on the menu.
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