Many restaurant workers fall below the poverty line. In addition to an increased minimum wage, tipping and service charges (an obligatory fee included on the customer’s bill, sometimes in lieu of optional tipping) have the potential to help restaurant workers make a living wage. Service charges are not currently required to be allocated to restaurant workers under state law, however, and additional regulation is needed for the benefit of restaurant workers. This brief recommends that service charge regulations be considered to close an existing loophole within California’s labor code.

If service charges are not better regulated, consumers and workers will remain uncertain about their meaning and usage. Furthermore, workers may not receive fair compensation in proportion to their performance, and employers are not held accountable if they fail to equitably distribute the fees. Legislators should consider the following:

• Establish laws to regulate the allocation of service charges to restaurant workers, following the examples set by Santa Monica, Oakland, and Emeryville;
• Explore and evaluate strategies for fair distribution of service charges among front-of-the-house and back-of-the-house employees to ensure all restaurant workers are fairly compensated;
• Ensure transparency and full disclosure for workers and consumers to understand where service charges are required, what they pay for, and to whom they are distributed.
• Enable effective implementation of the law by conducting outreach and education to employees and employers alike, creating penalties for misappropriation/theft of service charges, and providing protection against retaliation.

In sum, legal requirements for the allocation of service charges to restaurant workers would coincide well with the new minimum wage, and enable more families — particularly families of color and female-headed households — to earn a living wage.