LAFAYETTE, Ind. — On the days where leftovers don't seem appealing, I'm lucky to be surrounded by local eateries in downtown Lafayette where a light lunch can be snagged for about $10.
But I've noticed that I'm often being charged an additional fee, ranging 3% to 4%, between the subtotal and Indiana sales taxes on my receipt − labeled a "service charge."
But what is it, and what does that mean?
Fees popping up across the hospitality industry
For many years, it's been common to dine out with a large party and find an automatic 18% fee added to the bill in place of a tip.
Julie Tkach, a clinical professor in Purdue University's school of hospitality and tourism management, said that automatic gratuity was frequently referred to as a service fee. But in recent years, the term "service fee" has taken on a different meaning.
"I have looked at several different states, and it's really interesting as a service fee, by definition it is not the same as a tip, meaning customers may think that money they are spending is going back to the server or bartender," Tkach said. "That money collected through a service fee is going back to the business owners, who then decide where it needs to go."
Jeff Hamann, co-owner of the Knickerbocker Saloon, the Sixth Street Dive Bar and Digby's Pub and Patio, said he and business partner Mike Felt decided they wouldn't compromise the quality of any of their menu options across their restaurants despite rising wholesale prices. One way they have been able to combat inflation behind the scenes is by implementing a 4% service charge.
The 4% helps the restaurant cover the cost of running a customer's credit card, Hamann said. If a patron opts to pay with cash, the establishment will waive that 4% fee.
After the roll-out of the service fee, Hamann said the businesses caught some flak from customers, but what most people don't understand are how "razor thin" the profit margins are for food sales.
"Right now, chicken wings are $130 per case, which is about 92 cents per chicken wing − no difference if it's a flat or a drum," Hamann said. "No one wants to pay a dollar for a chicken wing, but how do you have a bar without chicken wings? On top of the cost of the wing, people forget that when we build out the price we are accounting for gas, water, electric, insurance, workman's comp insurance, taxes outside of sales tax and the cost of labor."
Out of all of those operational costs, Hamann said they can pass only so much onto the customer before menu pricing gets out of hand, forcing the restaurant to break even on certain menu items. The cost of running a customer's card typically costs the restaurant 2.9% to 3.9% of the customer's total bill.
That percentage for a service fee is within the range of what Tkach has encountered around the Midwest, she said, while larger cities such as New York City, Washington D.C. and Seattle have seen service charges on high-end restaurant bills reach 20%.
Although that is significantly larger than 4%, Tkach said those restaurants use the idea of a service charge to eliminate the need for tipping culture.
"Those instances are helping to take away that level of customer that may be undertipping or not tipping at all, leaving the servers stiffed, which in the long run helps with employee retention, as they know they're getting paid a stable wage," Tkach said. "So, the general issue with service charges is that the term is not consistently applied throughout the industry, so there is some general confusion with consumers."
Is there a better term than \'service charge?\'
Just outside of Lafayette along Indiana 38 sits Buck Creek Pizza, a locally loved gem in Dayton since 2009. Before Torry Allen took over the small business in 2021, the restaurant had implemented a "technology fee" on its receipts. Much like Hamann's businesses, the fee helped the business offset the cost of processing credit card payments.
Multiple signs explaining the fee are posted at the checkout counter of the restaurant, stating that if a customer chooses to pay in cash, that "technology fee" will be waived.
Allen said he didn't choose to call it a "technology fee." The company that Buck Creek Pizza uses to monitor its credit card sales did.
"With us being a small business, we probably wouldn't still be in business if we had to cover the cost of running credit cards," Allen said. "I hate to do it, but since I've owned the place, we haven't raised menu prices by any significant amount despite how expensive everything has gotten."
The majority of Buck Creek Pizza customers pay with credit cards, Allen said, noting he can count on just one hand the number of customers who have raised issue with their "technology fee."
"We recently had one guy come in and get upset because of the fee, and then got upset with our manager because we don't accept checks," Allen said. "We do give customers the cash option, and our customers know that. I also tell people about the ATM just next door at the liquor store, too."
On a table inside Revolution Barbecue in downtown Lafayette, a sign explains the restaurant has also implemented a 4% service fee on orders.
"To our valued customers, we would like to inform you that we have implemented a 4% service fee to help offset the effects of inflation, support our employees, and keep our food prices affordable without compromising the quality of ingredients," the sign reads. "We want to ensure that we continue to provide you with excellent food and service. The service fee will assist us with achieving this."
The Journal & Courier made several attempts to speak with management of Revolution Barbecue but did not receive a response.
Additional fees are something society has become complacent with, Tkach said, pointing to things where customers can't avoid it, such as hotel, resorts and concert tickets.
But is there a better term for these fees in the restaurant industry than "service charge"?
"I think customers are more used to seeing something called a 'service fee.' Calling it a technology fee is a bit more transparent in language, however. I think once things become more easily identified by consumers, they may take issue with it," Tkach said. "I think 'service fee' is a good term to use when we are using it for more than technology, more than just running your card, but I don't know of a term that would be better."
Can customers be convinced to change their ways?
Enjoying a salad brought from home outside the Tippecanoe County Courthouse, Karianna Roberts said to save money, she doesn't eat out for lunch very often.
But in the times she does, knowing a restaurant has a service charge doesn't deter her from that eatery.
"I'm willing to pay more for local restaurants because I know there are a lot of different costs that go into that business," Roberts said.
Knowing some Greater Lafayette restaurants will waive that 4% fee on the final bill isn't enough to make Roberts want to carry cash, she said. If that fee were significantly higher, she said she may think differently.
Skylar Tucker, an electrician from Fowler, said that while he's been working in downtown Lafayette this summer, he hasn't ventured out for meals much to avoid overeating while working in the heat, and to save money.
Encountering the term "service charge" on a receipt, Tucker said he would take the term to imply a form of gratuity. If he had to choose, Tucker said he would rather see that cost reflected in menu prices.
Working long days in downtown Lafayette, construction worker Randy Jacobs said he and some of his fellow crewmates have taken to finding sit-down restaurants around the Greater Lafayette area at which to unwind.
He's already familiar with service charges, Jacobs said, as the trend has made its way onto the receipts of businesses in Kokomo, where he lives, as well.
What he likes about the idea of service charges, he said, is having the option to have the fee waived if he pays in cash.
"I have my card on me, but I just prefer cash," Jacobs said. "I guess I'm just old-school."
Allen said the "old-school" mentality of carrying cash is something he's worked to impress on his 15-year-old daughter as she begins heading out to independently do things with friends.
"Cash is king; that's what I learned growing up. No one is going to turn down a dollar," Allen said. "Just recently we had an outage around us that was on the internet company where we weren't able to take cards. There are so many things that can affect the ability to take card, but nothing affects cash but you."
Tkach, who has a 15-year-old daughter of her own, said she is heavily reliant on her Apply Pay, which is linked to her own debit card. That aligns with what Tkach said tends to be a generational spending habit.
"Statistics show that Gen-Z and Millennials are more likely to use a credit card to pay for things, and it's easy to use it. They love the convenience of payment apps like Zelle and Apple Pay," Tkach said. "Money in our hands has a different value, but this is a get-out-of-debt mindset that a lot of older people have. For younger people, it means nothing to them. Cash is just not in their interests."
But even if a miracle occurred and society were to shift back to a cash mindset, Tkach said fees like the "service fee" probably wouldn't disappear.
There are certainly still restaurants out in the wild that remain cash-only. Tkach recalled one back in South Dakota, from where she recently moved. Despite knowing it was a cash-only establishment, patrons would still forget to grab cash before dining, leading the restaurant owners to install an ATM inside the building.
Could cash ever make a comeback? Tkach doesn't think so, though she said there's a chance for a change in the next generation.
"I think, from my perspective at least, that customers may appreciate seeing an overall increase in menu prices, but I wonder if a service fee is less intrusive in the total cost compared with increasing prices across the board," Tkach said. "Either way, when you as a business owner can say you're keeping menu prices down because of this fee, I think that makes it a little more palatable. Customers are always going to see things differently, or that it's more money coming out of their pockets, but really it's about the bigger picture."
Jillian Ellison is a reporter for the Journal and Courier. She can be reached via email at jellison@gannett.com. Follow her on X at @ellison_writes.
This article originally appeared on Muncie Star Press: Restaurant 'service charges' may be here to stay
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