May 5, 2021 - News

Service fees pick up steam at Minneapolis restaurants

Illustration of a restaurant bill holder with the words "no thank you" on it.

Illustration: Brendan Lynch/Axios

Diners returning to their favorite restaurants after the long COVID winter are noticing a new item on the menu: a service charge with a note about a no-tipping or tipping-not-expected policy.

Why it's happening now: It's essentially a reset for a lot of eateries across the area as they spin back up and try to find new workers.

  • Charlie Broder, the second-generation co-owner of Broder's Restaurants in Southwest Minneapolis, said the pandemic disruption was a "watershed moment" for restaurants to change their model.

How it works: Several Minneapolis restaurants have instituted service fees of 15% to 21% that they say go toward their employees' wages and benefits.

  • Broder's, for example, will use the fees to pay all employees at least $16 an hour and then split 5% of its revenue among all employees, said Broder. Diners can still tip on top of the 15% "equity and service fee."
  • "We're trying to create a compensation structure that looks different than it did before the pandemic ... and strive for pay equity between front-of-house and back-of-house service members," Broder told Nick.
  • Among other restaurants instituting such fees: Hola Arepa, Hai Hai, Tilia, Sea Salt Eatery, Surly and Alma. Revival will do no tipping at its new Smokes Meats restaurant in Minneapolis.

Yes, but: No-tipping restaurants are still relatively new, and it remains to be seen what this will do to servers' wages.

  • Since not all restaurants are going tip-free and there's an apparen labor shortage, servers who believe they can make more in a tipped establishment could create movement in the industry.

Between the lines: Most of the restaurants adding service charges are in Minneapolis, where the minimum wage is building toward $15 an hour.

  • Some owners have no choice but to increase wages, and a service fee is one way to handle that added cost.

The other side: While a service fee may not make much of a difference to customers who already tipped 20%, Wade Luneburg, political director of the UNITE Here Local 17 union, argued diners should know where that money goes.

  • "Our concern is around transparency, not just for workers but also for consumers," he said. "If you are a consumer, this is redistributing the gratuity."

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