Restaurants Navigate Rising Costs with Surcharges Amid “Junk Fees” Debate

Lawmakers are intensifying efforts to eliminate “junk fees,” but restaurants are attempting to avoid being caught in the crossfire. In recent years, surcharges covering everything from credit card processing to gratuities and inflation have become increasingly common on restaurant bills. Last year, 15% of restaurant owners added surcharges due to higher costs, according to the National Restaurant Association. By the second quarter of this year, 3.7% of restaurant transactions processed by Square included a service fee, more than double the rate at the beginning of 2022.

Critics argue that these fees can surprise customers, leading to unexpected higher costs at a time when many are already feeling financial strain. Diners have voiced their frustrations online, with some compiling lists of restaurants in cities like Los Angeles, Chicago, and D.C. that charge hidden fees. The practice has even been the subject of satire, reflecting growing consumer dissatisfaction.

The Biden administration has targeted such fees across various industries, and the Federal Trade Commission (FTC) is expected to introduce a rule banning “hidden and misleading fees” this fall. Restaurants, however, argue that these surcharges are essential to keeping their businesses viable, allowing them to fairly compensate employees in a highly competitive industry with slim profit margins.

Sean Kennedy, Executive Vice President of Public Affairs for the National Restaurant Association, stated that not all fees should be considered “junk,” as many are clearly explained to customers. However, some customers and advocacy groups remain skeptical. Concerns include potential wage theft, where service fees intended for staff are not fully distributed, and the possibility that customers may tip less when a service charge is already included.

Despite these concerns, many restaurant operators argue that service fees are necessary to pay employees more and provide better benefits. For example, Galit, a Middle Eastern restaurant in Chicago, implemented a 20% service charge to support its workers, in addition to a healthcare fee. These charges are clearly communicated to customers on the restaurant’s website, reservation page, and menu.

In some cases, fees help restaurants navigate local legislation. For example, service charges have become more common in D.C. after voters approved a measure phasing out the tipped wage by 2027. Other restaurants, like those managed by Cambridge Street Hospitality Group in Boston, have used service fees to offer better pay and benefits to kitchen staff, who are legally excluded from sharing in servers’ tips.

On the state level, restaurants have successfully lobbied to be excluded from some anti-junk-fee laws. In California, last-minute legislation allowed bars and restaurants to continue using mandatory fees without listing them explicitly, exempting the industry from broader regulations.

The National Restaurant Association is advocating for the FTC to protect three common restaurant fees: those for large parties, delivery, and credit card processing. The association emphasizes the need for transparency and urges operators to be clear with customers about these charges to maintain trust while navigating the rising costs of doing business.

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