Why is Tutta Bella moving from tips to a service charge?
Since we opened in 2004, all Tutta Bella hourly employees have participated in a tip pooling compensation model that promotes team collaboration and shared responsibilities for providing stellar guest experiences. Recently, the U.S. Court of Appeals for the Ninth Circuit ruled that employers are prohibited from including back-of-the-house/kitchen staff in tip pools, so we needed to consider other options.
After evaluating several options, we decided to eliminate tips and move to a service charge model. Ultimately, this allows us to reduce the amount of change experienced by both the staff and guest since we aren’t raising prices and can continue the collaborative work environment that our staff embraced when they chose to work at Tutta Bella.
This model is growing in popularity with restaurants in the greater Seattle area and is expected to be more broadly implemented in the next couple of years. We were prompted to change now due to legal regulations, but would have been following the trend in time. Currently, very few industries have tip structures and in all non-tip environments portions of the total sale go to employee wages and benefits, cost of goods, and overhead. Since tip environments have been shown to be rife with biases, an additional benefit of the service charge model is a higher level of wage equity.
What are the benefits to the guest?
Our teams are dedicated to offering welcoming, warm service and excellent food for our guests at every visit. Service charges make it easier to check out at the end of the meal since there is no need to determine a tip. Guests are also supporting a company that is working hard to be a leader in living wage improvement initiatives for restaurant employees. We appreciate our guests who have already provided us positive feedback for making this move in support of our employees.
What is the server’s incentive to provide good service now?
We hire, train, and retain employees that live our values. Genuine care of people is one of the attributes of our value Love and that is what we want driving our teams to provide great service. Earning the service charge through great food and service is our highest priority. We will continue to hire, train, and retain employees that are dedicated to this as well. Our teams will occasionally make mistakes, but we will always make it right for our guests.
What are your rates and what goes to your staff?
This is the information that you will find on our restaurant menus:
In place of gratuity, a 20% service charge is added to each guest check. 100% of these funds are collected and distributed as wages and benefits to our hourly restaurant employees — as part of our revenue-sharing bonus program — not paid directly to the staff who served you today. Thank you for choosing to dine at your neighborhood Tutta Bella.
For takeout, a 10% service charge is added to each guest check (with 100% collected and distributed as outlined above).
A revenue-sharing bonus program gives our employees ownership in stimulating and receiving a share of the company’s revenue. This is more lucrative for the participants than a bottom line profit-sharing program.
How did you decide on these percentages?
The main areas of focus for determining our service charge percentages were: how to continue to compensate our our staff with wages and benefits consistent to what they were receiving with our tip pool model, what would be fair to our guests based on their normal tipping percentages and what is standard with other restaurants in the area.
20% for in restaurant dining
Service charges must be considered revenue for all tax purposes, sales tax and contribution to income tax — unlike tips. All of the service charge revenue goes to wages and benefits, but the company as an employer must pay out taxes on it. Consequently, lowering the service charge below 20% is not financially sustainable. The service charge was also designed to compensate our staff at the level they were compensated under the tip pool model.
Our guests were currently tipping on average 20% for dining in, so that percentage service charge seemed to closely match what we had seen over time. In addition, a 20% service charge is the industry standard for casual and more upscale restaurants.
10% on takeout
While a takeout interaction may be less than dining in, the production piece of the transaction is sometimes even more involved. Because our service charge is used for compensation of all employees, and not just our Dining Room staff, service charges apply to takeout orders, but at the lower rate of 10%. Again, the service charge was calculated in a way to compensate our staff at the levels they were compensated under the tip pool. A majority of our guests provided a gratuity at a similar percentage on takeout orders before the change.
How is sales tax applied when there is a service charge?
The service charge percentage is applied to the cost of food & beverage pre-tax. Your food and beverage are subtotaled, the service charge is added, and then sales tax is applied to that subtotal. For example, $20 of food and beverage (dine in) has a $4 service charge. Since a service charge is considered revenue by Washington State, tax is applied to the $24 subtotal, which we collect and submit to Washington State’s Department of Revenue.
Why move to a service charge at all of your locations?
At Tutta Bella, we take employment “best practices” and implement them company wide. Since we are shifting from a tip pool to a service model to keep our compensation model and service culture similar and poised for improvements, it needs to be consistent across the company. Some other local restaurant groups are implementing service charges in response to Seattle’s $15 minimum wage legislation, so they are not using the model in their locations outside of Seattle. For Tutta Bella, the new minimum wage was part of the evaluation but not the primary stimulus for change.
Why is the service charge not optional or flexible?
A service charge that is discretionary or can be changed is no longer considered a service charge, but instead a tip. Service charges and tips are legally two different things from a compensation and tax standpoint. If you ever feel the service charge is undeserved, please speak to a manager during your visit.
What happens if a guest does not want to pay the set service fee?
Guest satisfaction continues to be a major priority with our teams. Our goal is for our service and food to exceed expectations. Guests who have concerns or compliments about their experience, and would like to discuss the service fee, should speak to a manager.