Saturday, May 11, 2024
Dear Erica,
I occasionally work banquets and private events at a nice hotel. The hotel charges a 22% service charge to its clients and charges a $200 bartender fee.
I bartend at the events and often receive less than the $200 bartender fee.
I feel they are taking money off from the top - mafia style. I'd like transparency on where these charges are going.
– Service Charge Confusion
Dear Service Charge Confusion,
As a consumer, I detest these service charges. As a bartender, it sounds like you do too.
Business owners and management disagree with both of us. Some states recognize that these service charges are confusing and try to help by creating laws requiring transparency when communicating where the service charge is going.
Those states are far and few between.
The only thing where employers, employees, and customers agree – service charges and how to categorize them are confusing.
The IRS put a news release in 2015 to help employers, but even that is not always the most helpful to employees.
The federal law usually categorizes service charges as a compulsory charge for service, for example, 22 percent of the bill, but does not consider the service charge a tip.
Even if the hotel distributed sums from the service charge to the employees, it is not considered a tip.
The employer could use that money to be part of the employee’s “regular rate of pay”.
For customers, it may appear to replace the tip, but that is not always the case. Again, some states require clear disclosure, ahem… transparency, on who receives the service charge.
But not all states and some of those states’ transparency requirements could be confusing as well.