Report: Restaurant service fees on rise while wages beat inflation
While still uncommon, service fees at restaurants are steadily on the rise.
About 3.7% of restaurant transactions included a service fee in the second quarter of 2024, according to Square’s latest Quarterly Restaurant Report, which uses data across Square’s food and beverage sellers to examine dining trends. This figure shows service fees — a percentage-based or fixed amount added to a transaction total that is different from a surcharge — more than doubling since the beginning of 2022 as inflation continues to impact restaurant operators.
“Margins are slimmer than ever for restaurants, and sellers have needed to find ways to offset higher costs,” said Ming-Tai Huh, head of restaurants at Square. “We know restaurants use service fees for many reasons like managing unpredictable shifts in their operations or overhead, maintenance, and administrative costs, among others."
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Square noted that the yearly growth of restaurant worker hourly pay (including base wages, tips, and overtime) continued to be higher than the rate of inflation. Even though restaurant workers' pay growth has slowed since COVID-19 highs, average hourly earnings were up 4.10% compared to the inflation rate of 2.98% as of July 2024.
“The result is good news for restaurant workers, but we are starting to see some warning signs of a softening labor market,” said Ara Kharazian, Square research lead and principal developer of Square Payroll Index. “The rate of wage growth has declined significantly from its 2022 peak, and unemployment, although historically low, has recently ticked up, alongside layoffs."
When it comes to nighttime restaurant and bar transactions, Square found that several major cities have seen increases since 2020. Square analyzed the share of in-person restaurant and bar transactions between 7 p.m. and 4 a.m., and found that while New York and Miami continue to nab the top spots, Boston has seen the most explosive growth. In the second quarter of 2019, just 12% of restaurant and bar transactions in the city happened late at night, increasing to 31% in 2024.
Richmond, Va. has also seen gains, where 35% of transactions occurred between 7 p.m. and 4 a.m. in 2024, compared to just 23% pre-COVID. Philadelphia’s nightlife has also rebounded and is now at 31% compared to 23% in the second quarter of 2019.
