What is a service charge?

A service charge is an extra fee added to a bill for providing a service. It's most commonly seen in restaurants, hotels, and other hospitality businesses, but can also apply to other services.

• Purpose: The purpose of a service charge is to cover the costs associated with providing the service and, sometimes, to supplement employee wages. Unlike a tip, a service charge is often controlled by the employer.

• Legality and Disclosure: The legality of service charges and the rules around them vary by jurisdiction. Transparent disclosure is crucial. Businesses are generally expected to clearly inform customers about the service charge before the service is provided, often on the menu or a sign.

• Distribution: How the service charge is distributed is important. In some places, laws dictate how much of it must go to employees. Sometimes it is fully allocated to employees as tips, in other cases it goes to the business to cover business expenses and potentially supplements employee wages.

• Service Charge vs. Tip: A service charge is not the same as a tip. Tips are voluntary payments made directly to the service provider, while service charges are mandatory fees added by the business.

• Consumer Rights: Consumers have the right to know about any service charges before they agree to the service. They also have the right to dispute charges that were not properly disclosed.