Expect More Surcharges as Businesses Cope with High California Costs

Business costs“Stopped by a Pizza Hut to bring some food in last night and was met with this beauty,” an L.A. Daily News reader emailed under the subject line, “Soon to be all over California?”

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Two photos were attached. One showed a bright red sign displayed prominently on the restaurant counter. Printed in bold type was this message: “Service Fee Disclosure – This location includes a service fee on all transactions. The service fee partially offsets the increased cost of operations in the State of California.”

The second photo showed a receipt with a 3.5 percent “service fee” below the subtotal and above the sales tax, and in extra-large letters, “SVC fee partially offsets the rising costs in CA.”

But it’s not “soon to be” all over California. It’s already all over California.

Ground zero seems to be San Francisco in early 2008, when a local law known as the Health Care Security Ordinance went into effect. The law requires any business in San Francisco that has 20 or more employees to set aside funds for workers’ health care.

Many restaurants decided to add an extra charge to customers’ checks instead of raising menu prices. Initially, some restaurants labeled the fee, “Healthy S.F. Surcharge.” Then in 2011 the Board of Supervisors amended the ordinance to require that any restaurant owner adding a “health” or “healthy” surcharge had to spend 100 percent of the money collected on health care. The city attorney investigated dozens of restaurants, leading to a costly settlement in 2013. The surcharges didn’t go away, but the name changed. Today they’re generally called “SF Mandates.”

This year, San Francisco’s Health Care Security Ordinance will cost employers $1.95 for each hour that each worker is paid, unless the employer has 100 or more employees, in which case the rate is $2.93.

The restaurant business is labor-intensive, and the cost of labor in California has been going up.

In 2015, the state mandated that employers give their workers three days a year of paid leave. In the Northern California town of Redding, Che Stedman, the co-owner and executive chef of Moonstone Bistro, began adding a 3 percent charge to customers’ checks to help cover the cost. “That is 24 hours of full paid leave,” he said, “so now every single employee that we have, we have to make sure that we have that money banked.”

Then in March 2016, on the Saturday before Easter, Gov. Jerry Brown cut a backroom deal with labor union leaders and state lawmakers to ratchet up the minimum wage in California to $15 an hour by 2023 for smaller employers, and by 2022 for larger ones. The Assembly Appropriations Committee passed the measure in 90 minutes and within 24 hours it was on the governor’s desk for his signature.

The California Restaurant Association was steaming like a Chinese dumpling but they couldn’t do a thing about it.

Or could they?

“Due to a myriad of legislative and court decisions, some restaurants in California have elected to add a surcharge to their receipts to defray increased costs incurred over the last several years,” begins an article on the association’s website titled, “Understanding and Guidance on Surcharges.” The tone is matter-of-fact. “The increased costs of operating a restaurant can be attributed to minimum wage increases, health care, paid sick leave, restrictive scheduling, cost of food and supplies and increased pay equity between traditionally tipped employees and heart of the house employees.”

The article offers advice on how to calculate taxes correctly and how to avoid getting sued by a city attorney, such as the one in San Diego who filed a slew of cases in 2017 charging some surcharging restaurants with false advertising and consumer fraud.

Last November, a San Diego Superior Court judge ruled in one of these cases that “the surcharge is not unlawful as a matter of law.” Similar rulings followed in similar cases.

Still, the California Restaurant Association recommends that restaurant owners minimize the risk of lawsuits by clearly disclosing the existence of a surcharge on a prominent sign or posting, large and conspicuous enough so that the sign is “likely to be read and understood by an ordinary individual under customary conditions of use and purchase.”

To avoid the problem that San Francisco restaurant owners had with the “health” surcharge, the association recommends keeping the reason for the surcharge as broad as possible, suggesting as one example, “to defray the increased cost of operations.”

“In the State of California,” added the owner of the Pizza Hut in Los Angeles, a city in which businesses also have to deal with a gross receipts tax and a trash monopoly franchise system that has sharply raised the cost of sanitation service.

Stephen Zolezzi, CEO of the Food and Beverage Association of San Diego, said in 2018 that surcharges allow the restaurant industry to send a message.

“Yes, it’s a political statement,” he said. “We’re trying to show people the consequences of legislation that adds to the cost of doing business.”

So the next time you see a “rising costs in CA” service fee on your restaurant receipt, don’t complain to the management. Go online to findyourrep.legislature.ca.gov and get the names and phone numbers of your state Assembly and Senate representatives. Chew them out for passing laws that are running up your bills.

Susan Shelley is a columnist and member of the editorial board of the Southern California News Group, and the author of the book, “How Trump Won.”

Originally published in the Los Angeles Daily News 


  1. Last weekend my wife and I drove over to San Diego from Yuma, AZ for a wedding. On the way, we stopped at a cafe restaurant in Pine Valley where we’ve eating numerous times before. The food was good as usual, but the prices weren’t. I had bacon and eggs with coffee and my wife had a turkey sandwich, fries and iced tea. The tab was nearly $40. The next time we travel into Kalifornistan, we’ll bring our own food.
    With gas between 75 cents to more than $1 higher than Yuma, I never buy more gas in Kalifornistan than I need to get back across the border.

  2. Bogiewheel says

    First it was a finger, then a hand. The arm is almost gone and this cabal in Sacramento could care less.

  3. Last week I ate in a place I hadn’t been in for a couple of months. When I was last in this restaurant there were 75 to 85 people eating. The place has always been busy, but last week I found only 14 other diners. This place was a ghost town and now I know why. At this rate this restaurant won’t be here long.

    • “This place was a ghost town and now I know why. At this rate this restaurant won’t be here long.”
      But with the rapacious hand of Sacramento in business owners pockets, it wasn’t like your restaruant had a long or happy future anyway, right?

  4. SHANE CONWAY says

    When is enough, “enough”?

    • Boris Badenof says

      A simple truth about Socialism

      What did Socialists have before candles


      It’s going to be a beyoch powering up those Teslas.

  5. Anthony G. says

    I was born and raised in San Francisco. Still live here only because the building is paid off long ago, Thanks Grandpa. Anyway between the soda tax, healthy San Francisco tax, 15.00 dollar a hour min wage, forget eating out. One restaurant by my house changes 4.00 for a can of soda. Are you nuts. Pasta dishes are 20.00 . Is tax here tax there. Empty store fronts. I wonder why. A taco place just opened up and there tacos are priced from 4.50 to 5.35 each. Needless to say I don’t go out much anymore. We are so screwed by the jackasses in sa ramento. Thank You

  6. You want to see crazy prices, come up here to San Francisco. Forget about eating out. Can of soda in one restaurant is four dollars. Pasta dishes closing in on twenty dollars. I can go on but you get the point. One more thing, if anyone is wondering what San Francisco is like just watch any of these shows or movies. It’s like Mad Max, The walking dead, Escape from New Your and Blade Runner. Thank You.

    • “I left my dough…in San-Fran-cisco……” I wonder if Tony Bennet would approve or endorse the lyric change?

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