Mandatory service Charge vs. Discretionary Tipping is a relevant case study in regards to the recent change in service charge income: A client wanted to calculate the advantage of adding an 18% service charge to all guest checks and disallow tipping. In this case, I have left the hourly wage for tipped employees at $8.00 per hour with the intent of an accelerated wage from the minimum. With this data taken from a single business day in June, you can see that the income from service charges would be $2402.28 (the sales tax having been paid by the guest). Payroll taxes are posted at an average of 12% of payroll for the employer’s portion of the combined payroll taxes.

Taking the total payroll expense and deducting the collected service charge – the new total payroll number would be $2029.07, leading to an overall payroll percentage of 15.2% as compared to the original 33.2%. Somewhere in the middle is where your accelerated hourly pay rate for tipped employees should fall. There is a good reason to consider this as we approach the tiered minimum wage increase in California.

About the Author

Jean Hagan, PrincipalJean Hagan
Restaurant, Hospitality
Jean has owned, operated, and consulted in the restaurant industry for more than 30 years. During that time, she worked with a well-known national chain; owned a food and beverage company that operated multiple restaurants, bars, and event spaces in the Squaw Valley area; and became the president, CEO, CFO, and shareholder of one of the highest-grossing restaurants in California. Today, Jean is Principal and leads the Restaurant Operations Consulting practice at KROST. » Full Bio