Its definitely not a “tax.” Tax would imply that the government is imposing it on the restaurant, which in turn the restaurant imposes on the customer. The tax would be paid to the government for something or another, and the restaurant would not see any of that money. In this case, the “service charge” goes directly to the company, which goes into the owners pocket.
In America though, its a common misconception that companies are to blame for low wages forcing servers to live off tips. A few years ago, yes, restaurants would pay under minimum wage and tell servers that they will make it back in tips, forcing customers to leave tips to make up what restaurants wouldn’t pay.
For example, in Somewhere, Florida, the state minimum is $3.00/hr, but for tipped jobs, it can be $1.00/hr. The restaurant will hire a server for $1.00/hr and tells them they will make $50.00 in a shift of 6 hours. So that server will make $56.00 that day. When paycheck time comes along, legally, the restaurant would have to report all the tips the server had so that they can tax accordingly. The problem was, cash tips are very hard to track. If the server made $50 a shift, they would probably report about $10 to the govt. So in the govt. eyes, the server only made $16 a day, and they would take a tax out of that. If customers left a 1% tip or a 100% tip, it really wouldn’t affect the server any in terms of tax because they could report any amount they wanted. However, currently the American government has been able to come up with a “formula” to tax servers working in the US…
For example, in Somewhere, Las Vegas, the state minimum is $3.00/hr, but for tipped jobs, its $1.00/hr. The restaurant hires a server for $1.00/hr and tells them they will make $50.00 in a shift of 6 hours. So the server will make $56.00 that day. When paycheck time comes along, the government will add up the amount of sales you did within that period, and add on the “customary” 15% tip to that total, and then they will take the tax out of that. In other words, lets say in a day, the server sells $330 worth of food. The “customary” tip of 15% would mean that the server made $50. So now, the government knows that you have $50 in tips, and they will levy a tax on that. So the day you made $56, after government taxes of about 25%…you will have netted about $42 for the day. The problem here is that if your customers do not give the “customary” 15%, the government will still take taxes out of that 15%. In a more simple explanation, if a customer gives less than 15% tip, the server will have to pay the government out of their own pockets. So if a customer stiffs the server and the total bill came out to $60. The server will have to pay taxes on that $10 tip the customer didn’t leave. So basically, if a customer leaves no tip, the server will not only not have made money, but they will also end up paying out of their pockets to the government.
Sorry for the long winded math lesson, but a lot of people do not know what the service industry is like. Many people see tipping as an unnecessary custom, but since the American government has created this so called “formula”, it has turned a “custom” into a mandatory thing. The bottom line now is that if the server doesn’t make the “customary” 15%, they will have to pay taxes on it like they did which ends up as the server losing money instead of making money.
I agree with the fact that there are horrible servers which think that they deserve the 15% or more and will throw fits if they don’t get the 15% or more. They don’t realize that “tipping” is a custom, and it comes from hard work and good service. If i get crappy service, i will most definitely leave without tipping, or a less than average tip, but on the same note, if i get an extraordinary server that keeps me happy throughout the meal and is a hard worker, i’ll might leave them a 100% tip. At least i know that the money i give them will go to them. The money i want to give to the restaurant, i will have already paid for on the bill, the “service charge” is what I give to the server for doing an extraordinary job.
I have seen other countries that do a service included in the bill, but that money usually goes into a pot that is given to everyone from the chef to the server. In Taiwan though, it seems that this charge goes straight into the pockets of the restaurant. I think this is mainly because of greed and there are no laws about this kind of thing here.