What's the Difference Between a Service Charge and a Tip? Check Your Bill

Whether delivering food or placing a pastry into a bag, everyone is expecting a hefty tip these days. And while the tipping culture has gotten out of hand – with digital kiosks prompting customers to tip on transactions that were free in the past – it isn't going away anytime soon.

These days, some restaurants and bars even tack on a fixed service charge, which gained popularity during the COVID-19 pandemic as a way to offer more wage stability to waiters and bartenders. So, if you’re headed out to dinner tonight, you may want to check your bill to see if a service charge has been added.

But first, let’s look at the difference between a service charge vs. a tip.

A service charge, service fee, or automatic gratuity, is a fee collected in exchange for a product or service. Typically, it's incurred at the time of the transaction and included in the bill.

Service charges have become very common in the food service industry as many restauranters add it to the bill for reasons like:

• Automatic gratuity for large parties
• Bottle service at a bar or nightclub
• Room service charge for a hotel restaurant
• Delivery fee for online deliveries
• Banquet or catering fee

Times have changed. Now, a lot of bars and restaurants pool tips to ensure everyone gets a slice of the pie, and they’ve tacked on a service charge to the bill. So, what's the difference between a service charge vs. a tip?

Keep in mind that a service charge goes directly to the restaurant or business, and they can allocate that money however they’d like. They are considered non-tip wages and you’re required to pay them.

A tip, which is also called gratuity, is additional payment added on top of the check total and gifted as a thank you for good service and great hospitality. So, the main difference between a service charge versus a tip is that the service charge must be paid, and the tip is optional.

The second difference is how they’re allocated. While service charge allocations are up to the business owner, tips will either go directly to the server or into a tip pool. The tip pool is where all of the tip money from the night goes, and it’s redistributed evenly or by percentage, excluding restaurant managers or owners.

So, should you add tip if there's a service charge? Typically, yes you should, since a service charge isn't guaranteed to go to the server, you should leave a tip too.