Confused About Tipping, Fees And Service Charges? We Took A Deep Dive

For me, coffee is life. I depend on it greatly throughout the day as a journalist. Sure, a trip to the coffee shop to get a specialty drink is always a nice treat when I need some fresh air and to clear my mind. However, given the deadline crunches, I often depend on making coffee at home.

After running out of coffee beans recently, I walked up to the nearby cafe up the street. When I swiped my card, I got asked if I’d like to tip on the beans, which I thought was a little odd given I was the one that brought up the beans to the register. So I opted not to. But I was left with the question:

Should I be tipping on this bag of coffee beans?

To tip or not to tip? That is the question

In my almost 41 years of life, tipping has always been around. I remember going out to eat with my parents when I was younger, paying cash, and getting back a receipt tray with some change on it, in which my parents would leave a few bucks for the server — end of story.

However, times have changed, including tipping. As iPads and portable card readers have become commonplace amongst restaurants and cafes, tipping has become much more streamlined.

A customer looks over the bakery case fulled with naturally leavened bread displayed at Colossus in Long Beach.

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It was always my understanding that tipping was a way to offset the costs of working a minimum-wage job without health care benefits, which is why tipping is less common in other countries with socialized benefits.

So tipping is likely spreading to non-previously tippable spaces for that reason — a way for baristas and the like to attempt to pay the bills in our expensive city, where the cost of living is notoriously high.

And now there's service fees.

Service fees versus tipping: understanding the difference

This past weekend, we ran a story about the viral Reddit post from Mid-City resident Brittany Gorin, which led community members to create a Google sheet documenting all the different service fees people have encountered when dining in Los Angeles.

Diners enjoy the patio at Colossus in Long Beach.

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Brian Feinzimer

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With more and more restaurants using service fees as part of the bill, diners are often left scratching their heads in these situations, wondering if the 15% or 20% fee is to replace a traditional tip or if restaurant guests are expected to tip on top of that.

Here's the thing — in most cases, service fees are deliberately meant to replace tips. They're a way to pay the staff more predictably and fairly and in some cases even offer health insurance.

And there's another big difference between tipping and fees: Tipping is optional. Service fees aren’t (at least, most of the time. More on that later).

Are service fees legal?

California's labor code states that service fees aren’t considered tips from a wage perspective.

Instead, says Oakland employment lawyer Patrick Kitchin, they’re “a requirement of eating at that restaurant,” an agreement that customers enter with a business when they agree to pay to dine at a restaurant.

”That means that restaurant owners can collect them and distribute them individually to their employees or use them to pay for things such as health care for their employees,” he said. “Or even use them to pay all employees (wait staff, kitchen staff) competitive wages.”

Kitchin, who has spent his career litigating dozens of lawsuits against restaurants over wage and hour violations as well as representing restaurant owners, says if a restaurant does decide to enact a service fee, it’s up to them to alert the customer what they’re doing and what they are planning to do with the money that is being collected.

Kitchin mentions a restaurant he works with in Los Angeles County that has redone their tipping pool policy and is charging a service fee.

“Employers are using service fees to bring up those kinds of wages. They should be carefully spelled out for the employees so they understand how that's gonna work. Restaurants will do a complicated spreadsheet saying, "Here's how you earn portions of those service fees.”

A customer pays at Colossus in Long Beach.

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Brian Feinzimer

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He admits these overly complex systems can leave many wanting, especially for employees accustomed to taking home tips at the end of every shift instead of waiting until they receive their paycheck.

However, how things work may be different depending on where you are within the state of California.

In Santa Monica, for example, its municipal code is even stricter. It says:

• Service fees can only go to the staff serving the customer, including the back of the house. It can’t go to managers or supervisors. 

• The restaurant has to “clearly disclose” all service charges to customers before they make a selection. 

• The restaurant can’t automatically include any optional charge in a bill. If the charge is optional, it's up to the customer to include the additional amount they wish to leave.

What to do when you encounter service fees

Transparency is key. For diners who see a service charge on their bill, ask your server or the manager what it’s for and who it goes to. Service fees can be defined as “wellness fees” or something similar.

Since each restaurant decides its policy, some don’t make it a requirement and the customer can refuse fees if they don’t wish to pay.

Another model: nixing tips and raising prices instead

Last year, in a Labor Day post via Instagram. Colossus Bread, an independently owned cafe and bakery in Long Beach and San Pedro, did away with tipping. Instead of service fees, their plan consisted of instituting a mandatory 15% price increase for all in-house-made items and raising their starting wage for all entry-level positions for their employees to $21 hourly and $25 starting for lead positions. The idea would be that the price increase would offset the need for tipping.

For owner Kristin Colazas Rodriguez, radical transparency to their customer base was the bottom line. When her employees voiced hesitancy and worried that people would feel duped by the change, she decided to get rid of the tip jar.

“We were afraid being tip included and having a tip jar would lead to the same confusion that results from charging a service charge,” she said.

In place of the tip jar is a sign explaining the price and wage increase to the customer as an opportunity to build awareness — a conversation that Colazas Rodriguez is more than willing to have.

A customer pays at Colossus in Long Beach.

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Brian Feinzimer

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“We should talk about the fact that we're paying equitable wages to our whole crew. No one does that. I don't want people not to notice it," she said.

Colazas Rodriguez says in the year since enacting the plan, there haven’t been a lot of complaints. Since the 15% is already added to the cost of each item, rather than adding a separate charge, she says it streamlines the conversation and makes it less of an issue.

Kristin Colazas Rodriguez, owner and operator of Colossus Bread.

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Which, to Colazas Rodriguez, leaves her feeling a little conflicted.

“It's good and bad. 'cause I think what we're doing is super different. We're being as transparent as possible about it. And I think it's a really cool thing that I wanna talk about.”

My bag of beans

As for whether to tip for a bag of beans — recently, I was low again on my coffee beans, so I returned to the coffee shop to get another bag. This time, I asked the person ringing me up if people normally tip when purchasing beans.

They told me that customers are not expected to tip when it comes to coffee beans or any of their grab-and-go items. I was overcome with a sense of relief, knowing that I wasn’t stiffing anyone. So next time you are confronted with the question to tip or not, simply ask.