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.
Author: Jean Hagan, Principal – Restaurant Operations Practice Leader