this post was submitted on 12 Nov 2023
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Mildly Infuriating
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By tradition, the service charge is supposed to be paid to the staff. Therefore, it's not customary to tip when you're assessed a service charge, although many restaurants choose to ask for a tip anyway.
If you work in a restaurant that charges a service charge but pockets it... you're being robbed.
Unfortunately, this isn't true anymore. At least in PA.
34 Pa. Code 231.114. Service charges.
§ 231.114 b
The notice required by subsection (a) must state that the administrative charge is for administration of the banquet, special function or package deal and does not include a tip to be distributed to the employees who provided service to the guests.
https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/034/chapter231/s231.114.html&d=reduce
If this restaurant was passing the entire service charge to its waitstaff, it would be advantageous to call it a gratuity and exempt it from sales and income tax. The IRS does not tax tips/gratuities as income.
By charging (state) sales tax on the service fee, they also have to declare it as revenue, which increases their income and thus their income tax. They have to pay a portion of that service fee in income tax, so they aren't going to be passing the full amount to their waitstaff. The restaurant will be keeping the bulk of that service fee.