Administrative Surcharge: How to do it right!

jimdNEWS

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Message from the President
Food & Beverage Association of San Diego County
What can be done to increase needed revenue?

All operators are experiencing increased operating costs and thinking about creative ways to find that extra revenue.

Options;

A-Eliminate tipping and raise menu prices and raise pay accordingly

B-Eliminate tipping and raise menu prices and institute tip pooling

C-Leave tipping and minor adjustments to menu prices alone and add an administrative surcharge in response to and in support of minimum wage increases and California Programs

D-Leave tipping as is with no administrative surcharge and increase menu prices only

E-Hybrids of the above

Everyone agrees something has to happen to generate the extra dollars needed to cover all the mandated increases levied on California businesses—question is which one will do the job while not sending customers off in a different direction and alienate employees.

All of the listed options have and are being used with varying success throughout the country and here in California. Customer’s responses range from—acceptance to revolt! Without a level playing field those businesses testing the water first take the chance of losing market share to problem solved-move on. If it were that easy everyone would be doing it—well the time has come for everyone to test the water or suffer dire consequences-our back is to the wall.

Washington DC where the minimum wage increased long enough ago to evaluate its impact is seeing marked increases in menu prices along with increased business closures and decreased number of hospitality employees.

Like it or not we are at war with grocery stores for customers dollars. This year grocery store prices are up by 2.4% while restaurant menu prices are up by 6.4%—net effect is they are getting higher customer frequency and dollars while restaurants are declining in customer frequency and overall dollars spent. And online meal ordering and Hotels add a premium to the total bill that customers have come to expect.

IRS, WC and Board of Equalization impact; these costs have to be calculated and added to the hourly wage to account for the full cost of wages and customers total bill. Withholding and WC can average an additional 20% and whatever is added to the customer check gets sales tax added.

Whatever decision you make customers and employees need to be educated and well informed of the Who, What, When, Where and Why to maximize smooth sailing.

Most restaurants in California and San Diego who have or plan to take action support plan C— Leave tipping and minor adjustments to menu prices alone and add an Administrative Surcharge in response to and in support of minimum wage increases and California Programs.
The mechanics for implementation are very important to get right the first time.

  • First meet with front of house staff so they have an understanding of what will be expected and why.
  • Second add an explanation to the menu so customers are fore told what your new policy is and why.
  • Third reconfigure the customer bill to include the Administrative Surcharge %, brief explanation and server tip calculator to credit card charge slip.

Example;

Customer Bill Total

Administrative Surcharge—5% (Not a Gratuity)

Sales Tax

Total

Credit Card Receipt—add tip calculator

 

Explanation to Customer: We Support Minimum Wage Increases “The Administrative Surcharge is related to and in support of minimum wage increases and California Programs —Is not a Gratuity and will be reviewed quarterly”.

Plan C embraces the minimum wage increase and is least disruptive to ongoing operations because it separates increased wage costs while increasing your business revenue and allows for quarterly review to adjust the rate.

What you cannot do is continue to absorb costs you have no control over. Customers will benefit from knowing what social programs cost.

Other steps restaurants need to take include menu re-engineering to maximize menu return on dollars spent-Professionals are available to help.

The Food & Beverage Association remains dedicated to fulfill our mission keeping businesses Safe, Legal and Profitable. Please direct questions to fbasd@foodnbeverage.org or call 619-228-2291.

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