Duff on Hospitality Law

Service charges, administrative charges, surcharges, house fees—whatever you call those charges assessed for food and beverage service in restaurants and in hotels—the rules about how they need to be disclosed to guests and how they must be allocated are propagating. More and more cities, municipalities and other local legal bodies are taking on service charges in detailed laws, and we expect more to come.

Interest in this issue at all levels of lawmaking seems to be increasing as living wage/minimum wage raise efforts become more and more popular throughout the country. Many such efforts result in laws that also affect how service charges may be collected, distributed and how they must be disclosed to consumers. In other words, the locus for relevant law in this area has shifted significantly from the state to the county or city level.

In a recent blog post, we highlighted the trend amongst hoteliers and restaurateurs toward adopting service charge models to meet the rise in state and local minimum wage requirements. Although “no-tip” and “service charge” policies are receiving their fair share of attention in the news, employers with improperly designed tip pools are garnering their own headlines—and lawsuits. For example, Red Robin recently agreed to a $1.3 million settlement in response to class action claims against the company that it impermissibly included back of house kitchen staff in the servers’ tip pool. If your company requires employees to pool their tips, or is considering doing so, it will want to avoid some common and costly pitfalls that have beleaguered others. For starters: 

As lawmakers continue to increase the minimum wage in states and cities across the country, many hoteliers and restaurateurs are implementing service charges and tip pools in order to meet rising costs and help workers earn consistent and livable wages. If your company is considering making such a move, you will want to do your homework to avoid the negative headlines, legal complications and financial burden that can accompany improper implementation of service charge or tip pool policies. Today’s post will focus on service charges.

I’m pleased to introduce another guest author from local accounting firm Clark Nuber. Julie Eisenhauer is an audit and accounting principal specializing in the hospitality industry. We're grateful that Julie has offered to share her experience and knowledge with our readers. Welcome, Julie, and thank you for today’s post on this important revenue ruling. – Greg