Owners say they need the surcharges to stay in business and remain competitive. Critics say it’s a sneaky way to increase the tab without raising menu prices.
Jocelyn Jimenez was surprised to see a 3% surcharge on her bill after a recent happy hour in River North.
Though Moe’s Cantina’s surcharge to cover rising costs was listed on a sign near the front door and near the top of its virtual menu, she hadn’t noticed it.
“It should be reflected on the prices already there,” said Jimenez, 25, who lives near Midway Airport. “That way, I know I should put this much money aside.”
She says she’s seeing fees at more restaurants — usually hidden at the bottom of menus.
Restaurant owners say they need the surcharges to stay in business and keep their menu prices competitive. Critics say it’s a sneaky way to increase the bill.
Many surcharges are a few percentage points of the total to cover costs such as labor, food or credit card fees, but can be as high as 25% to cover employee tips.
‘Not the same business it used to be’
Many restaurants introduced surcharges during the COVID-19 pandemic when social distancing restrictions limited indoor seating and businesses tried to recover lost revenue.
As restrictions eased and the pandemic was no longer a public health emergency, many restaurants kept the surcharges. The National Restaurant Association estimates that 15% of all restaurants now collect service fees.
More Chicago restaurants may resort to service fees as the city phases out the tipped-worker subminimum wage.
Upset customers on the message board website Reddit have added more than 150 restaurants with service charges on what they called a “Surcharge Offenders List.” Most Chicago restaurants on the list charge about 3%.
Sam Sanchez added a 3% service fee in late 2019 to cover security costs at two restaurants he owns in River North, Moe’s Cantina and Tree House. The restaurants have kept that charge to cover increases in property taxes and credit card fees, Sanchez said.
“People say, ‘Write the prices on the menus.’ But we’d have to reprint the menu over and over. Labor goes up every year. So [with] the 3% is across the board, you’re not charging more for one thing and less for another,” Sanchez said. “That covers all the increases: costs of goods, property taxes, security.”
Scott Weiner, co-owner of Fifty/50 Restaurant Group, which owns Roots and West Town Bakery among others, said his business avoided a service fee for as long as possible but, due to unpredictable price increases, resorted last year to a 3% surcharge to cover credit card fees.
Customers are informed about the charge by signs near the door and on the menu. They can avoid the charge by using cash or a debit card, he said.
“When we implemented this a year ago, we got a little bit of pushback,” he said. “But it’s not the same business it used to be. No one’s ever seen the business change like this.”
Bridgette Flagg, owner and head cook of Soulé, a Creole soul food restaurant in North Lawndale, charges a 3.5% fee for takeout orders to cover the cost of containers. Those costs have doubled since the lockdown and account for about $2 for a $20 order, she says.
“At some point, we can’t eat all those costs,” Flagg said.
She’s resisted the urge to add a dine-in surcharge. The pushback from customers would be too intense, she says. Her restaurant once accidentally charged a customer a 20% gratuity fee — meant for parties of four or more — in place of the takeout fee.
“It was an honest mistake, and she went on Facebook and dragged me,” Flagg said. “I just don’t want to [charge] anything extra. It really hurt my business.”
Service fees as a mandatory tip
Some restaurants charge 20% or more, usually in place of a tip.
Daisies in Logan Square charges all dine-in guests a 25% surcharge — among the highest in Chicago. The surcharge is meant to cover a 20% tip and 5% for staff health insurance, owner Joe Frillman said.
It was a risk to make tipping mandatory, but the restaurant’s quality of service justifies it, Frillman said. Although a 25% surcharge is rare, it’s similar to surcharges at other high-end establishments such as Alinea, he said. The three-Michelin-starred restaurant has a 20% service charge.
While more restaurants may adopt surcharges to offset rising labor costs, relying on service fees to cover tips has its perils.
Chicago employment lawyer Tim Nolan says there’s little transparency about where the money from service fees goes. Tips are legally protected and can go only to tipped employees. Service fees, on the other hand, have no legal oversight.
“Therefore the owner, the manager, frankly, can do whatever they want with that money,” Nolan said.
Restaurant surcharges are legal in Chicago as long as they’re posted before purchase and not labeled as a tax. Surcharges have been banned for decades in New York City. The fees were briefly allowed there during the worst of COVID-19, capped at 10%. But they were banned again when lockdowns were lifted.
“Here, we’re not doing that,” Nolan said of Chicago. “We’re operating as if the service charge is a normal component of the restaurant business when, in fact, it never was.”
Surcharges to cover credit card fees
Many restaurants have added surcharges to cover the cost of fees for credit card transactions.
Transaction fees for credit card charges are usually 2% to 4% of the bill. But the fees add up quickly for restaurants. The National Restaurant Association says credit card fees are the third-largest cost of business behind labor and food.
“Every time someone gets points [on their credit card], someone’s paying for that: retailers and restaurants,” said Kevin Vaughan, owner of the Emerald Loop Bar & Grill and Vaughan’s Pub locations in Lake View and on the Far Northwest Side.
Vaughan has resisted charging customers a service fee. He said his customers, mostly locals, would not accept it.
“It would cause a social media rebellion,” Vaughan said. “People are more inclined to be more critical of their neighborhood spot than a fine-dining establishment.”
No fan of fees
Izzy Kharasch, a restaurant consultant and owner of Hospitality Works in Deerfield, tells owners to avoid surcharges.
“When they do that, they’re trying to sneak one by you,” he said.
He travels the country to consult for restaurants. He’s seen surcharges proliferating in large cities like Chicago but not in smaller markets where returning customers are important.
“In those smaller markets, if you [charge] that fee to them, it’s offensive,” he said.
Kharasch recommends customers request to have the service fee removed from their bill whenever possible. He’s made a habit of deducting the fees from his tip.
Nolan, the employment lawyer, suspects service fees won’t stick around as customers become better at spotting them.
“I think, when you add all these charges in collectively — which they don’t have outside the county — I think [restaurants] shoot themselves in the foot,” Nolan said. “I think people will begin looking and checking” before dining.