Where are Your “Service Charges” Going?

Each day hotels, restaurants, and banquet facilities host thousands of events ranging from business lunches to weddings. Most of these events will incur some sort of “service charges”. By the very nature of the term these charges are intended to be used applied toward paying for the “services” rendered by waitstaff and other tipped employees. As it turns out, many times this is not the case.

Some restaurants, hotels, and other event facilities are keeping a portion of these charges for themselves and even passing these funds on to non-tipped employees like managers and directors. This not only takes money out of the pocket of waitstaff but also misleads the customers about where their money is going.

A typical waitstaff employee may make as little as $2.13 per hour. This extremely low wage is offset by tips and service charges that are paid by customers in exchange for services rendered by the waiter or waitress. Taking “service charge” fees away from these employees and giving them to another employee who is already being paid a salary or keeping a portion of these charges to help offset payroll is not only wrong, it may end up costing the establishment big bucks.

A new area of wage & hour litigation has been brewing recent months has many companies paying out millions to settle “service charge” claims by both customers and employees.

Unique laws in some states allow for customers and employees to recover compensation for these misappropriated fees and in some cases that compensation may far outweigh the actual damages.

In many states the law may be interpreted to require all “service charges” to be distributed to non-tipped employees for the services rendered unless it is clearly disclosed to the customer that a portion is kept by the establishment or distributed in another manner.

So what about you party planners? Have you ever wondered where your service charges are going? It might not be going where you thought it was, and in fact may in some cases lining the pockets of those already making the most money.

And what about you waitstaffers? Has your company been keeping a portion of your tips for themselves or distributing them out to other non-tipped employees? If so you may be entitled to compensation.