Why Service Charges Exist (And Where Your Money Actually Goes)

You ever looked at your bill in a restaurant or bar and thought, “What’s this service charge for?” Maybe you’ve assumed it’s just extra profit for the business. But that’s not how it works.

Service charges exist for one main reason: to make sure staff are fairly paid.

What Happens to the Service Charge?

In the UK, 100% of service charges legally have to go to the staff—the business doesn’t keep it. That means it’s shared between servers, bartenders, chefs, kitchen porters, and even the staff you don’t see.

But here’s the part most people don’t realise: the business still has to process that money through payroll. That means they have to cover:

• Tax & National Insurance contributions on service charge payments

• Admin costs to fairly distribute the money

• The extra workload of managing tips through a proper system

So instead of service charge being ‘extra profit,’ it actually becomes another cost to manage.

Why Not Just Increase Wages Instead?

A lot of people say, “Why don’t restaurants just pay higher wages instead of relying on service charges?”

In an ideal world, that would be great. But the reality is, hospitality already runs on incredibly tight margins.

• Staff wages typically account for 30-35% of total revenue.

• Food and drink costs take another 30%.

• Rent, electricity, insurance, maintenance, and everything else eat up another 30%.

• That leaves a tiny percentage for actual profit—if they’re lucky.

If venues raised base wages significantly, they’d have no choice but to raise menu prices even higher—which customers often don’t want.

What About Service Charge vs. Tips?

Some people think that tipping is the same as service charge, but they’re different.

• Service charge is an automatic percentage added to the bill—it’s distributed fairly among all staff.

• Tips are given voluntarily by the customer—but they might only go to the person who served them, rather than the whole team.

In the UK, tipping culture isn’t as strong as in some other countries, so service charge helps ensure that everyone who contributes to your experience gets a fair share.

So, Should You Pay the Service Charge?

If you’ve had great service? Yes. That money goes directly to the staff who made your experience enjoyable.

If something was genuinely wrong? You have every right to ask for it to be removed—but just know that it’s not punishing the business, it’s taking money away from the people who worked hard to serve you.

The Bottom Line

Service charge isn’t a sneaky extra fee. It’s there to make sure that hospitality workers get properly paid for their work, without restaurants having to push menu prices up even higher.

So next time you see it on your bill, just know—it’s not lining the restaurant’s pockets, it’s supporting the staff who made your night.

Like what you’ve read?

Head to trevorhill.kit.com/mailinglist and grab my free ebook: The Four Pillars – A Sanity Manual for Hospitality Owners. It’s a short, honest guide to the four areas that helped me rebuild after burnout, with practical advice and real-world tools to help you take back control.