Service Charges Overview

About Service Charges
Common Uses for Service Charges
Required Modules, Permissions, and Who Can Use It
How Service Charges Work
Service Charge vs. Surcharge vs. Other Fees
Name Your Service Charge Compliantly
Service Charge Setup Best Practices
Common Questions About Service Charges
Related Articles

About Service Charges

A service charge is an additional fee a restaurant can add to a guest's check for reasons such as a delivery fee, a large-party fee, or a fee to help offset rising operating costs. A service charge is added to a guest's bill no matter how the guest chooses to pay, whether by cash, credit, debit, gift card, or another method.

A service charge can either be kept by the restaurant or paid out to an employee. The single setting that decides this is Assign to check owner (Gratuity?) in the service charge's setup. When that setting is set to Yes, the charge becomes a mandatory gratuity paid to the employee who owns the check. When it is set to No, the charge is an employer-kept service charge that stays with the restaurant.

Note: The service charge feature is not intended to support card surcharging. Toast merchants are solely responsible for compliance with all applicable laws and rules, including those that apply to imposing service charges. If you are unsure about the local laws, regulations, or card network rules that apply to you, please consult an attorney or other professional for advice based on your unique circumstances.

Common Uses for Service Charges

Restaurants add service charges for many different reasons. Common examples include:

Distance-based delivery charge
Large dining party automatic gratuity
Banquet or event fee
Takeout fee to cover overhead such as packaging, napkins, and utensils
Takeout fee to cover online ordering costs
Hotel room service charge

Required Modules, Permissions, and Who Can Use It

Service charges are configured in Toast Web and apply to orders taken on the Toast POS. If you use Toast Tips Manager and Toast Payroll, mandatory gratuity also flows into those products.

To create and apply service charges, your role needs the following permissions:

1.10 Add / Update Service Charges to apply service charges to orders
6.3 Payments Setup to configure service charges in Toast Web

If you cannot access the service charge area, your role may not include the required permission. Contact a teammate with admin access to grant it.

How Service Charges Work

In Toast, there are two distinct types of service charge, and the Assign to check owner (Gratuity?) setting determines which one you have created.

Employer-kept service charge. Assign to check owner (Gratuity?) is set to No. The charge stays with the restaurant and is part of net sales for the business. It is not employee income. On a guest receipt, it appears as a line item at the bottom of the check, separate from taxes and totals.
Mandatory gratuity. Assign to check owner (Gratuity?) is set to Yes. The charge is paid to the employee who owns the check as non-tip income. On a guest receipt, it appears within a Fees and Charges section near the subtotal rather than on its own line.

A mandatory gratuity is not a tip. A tip is decided by the customer. A mandatory gratuity is decided by the restaurant and paid to the employee. This setting also affects how the charge appears in your general ledger (GL) codes and accounts, and where it shows up in reporting and payroll.

For full setup steps and where each charge appears in reporting and payroll, see Get Started With Service Charges and Mandatory Gratuity.

Service Charge vs. Surcharge vs. Other Fees

A service charge and a surcharge are not the same thing, and Toast treats them differently. Use this comparison to confirm which one applies before you set up a fee.

Fee type	What it is	Applies to
Service charge	An additional fee for a service or operating cost, unrelated to the payment method	All payment methods equally (cash, credit, debit, gift card)
Credit card surcharge	A fee charged specifically when a guest pays with a credit card	Credit card payments only
Convenience fee	A fixed flat fee for purchases made in a card-not-present channel, such as online ordering	All payment methods in that channel, with specific card network rules

Restaurants should not use the service charge feature to apply credit card surcharges. Any fee added through Toast's service charge functionality that is applied only to card payments, or removed only for non-card payments, is a non-compliant credit card surcharge. Toast Credit Card Surcharging is the only compliant way to apply credit card surcharges on the platform, and not all customers are eligible. To learn more, see Surcharging Overview and Get Started With Credit Card Surcharging.

Note: If a service charge is waived for cash-paying guests, it is considered a non-compliant surcharge. Cash discounting should not be used together with service charges. To learn more, see Cash Discounting Overview.

Name Your Service Charge Compliantly

The language you use to name a fee should be clear, concise, and easy for guests to understand. Clear naming helps avoid potential card brand violations. When naming a service charge for operating costs or a specific service:

Consider using: "Inflation Fee," "Venue Fee," "Admin Fee," "Restaurant Fee," "Technology Fee," or "Service Charge."
Do not use "Surcharge." Because this fee is not a credit card surcharge, the word "surcharge" should not appear in the name or description.
Do not use payment-method-specific names. Avoid any phrase related to a payment method or transaction processing, such as "transaction fee," "credit card fee," "non-cash fee," or "processing fee."
Do not use "Convenience Fee." This term has specific card brand rules and may result in violations if used incorrectly. A convenience fee can only be applied in card-not-present channels, must apply to all payment methods equally, must be a fixed flat fee rather than a percentage, must be disclosed to guests before purchase, and cannot be combined with a credit card surcharge.
Do not use "Service Fee." This term has specific card brand rules and cannot be used by restaurants.
Avoid characterizing any fee in a way that differs from its true purpose. For example, do not describe a fee as a mandatory gratuity unless it is treated as such for the benefit of staff in accordance with applicable laws.

Service Charge Setup Best Practices

To create a service charge that stays compliant, Toast recommends the following practices.

Apply the charge to all payment methods equally. To keep a service charge from automatically becoming a surcharge, it must apply no matter what form of payment the guest uses, including cash and gift card payments.
Apply it to every check when needed. Setting the Apply After Amount Threshold to $0.01 or more automatically applies the service charge to any order, regardless of dining option. The Delivery, Takeout, and Dine In boxes must be unchecked for the service charge to apply to every check.
Train your staff. Make sure any explanation staff give a guest about the fee is unrelated to the payment method, and that staff do not remove or reduce the service charge for specific payment methods.
Disclose fees clearly. Disclose fees to guests before they choose to make a purchase. Post signage where helpful, such as at the entrance, near the POS, on menus, in the dining area, and on your website. Make sure disclosures do not imply that the fee is related to using a payment card.

Note: Requirements for certain fees, cash discounting, and credit card surcharging are set by card brands such as Visa and Mastercard, not by Toast. Following these requirements helps your restaurant stay compliant and avoid potential fines and violations.

For step-by-step instructions on how to create, edit, or rename a service charge, see Customize Service Charges and Mandatory Gratuity.

Common Questions About Service Charges

Is a service charge the same as a gratuity?

A service charge is not automatically the same as a gratuity. A service charge becomes a mandatory gratuity only when Assign to check owner (Gratuity?) is set to Yes, which pays it to the employee who owns the check. When that setting is No, the charge is kept by the restaurant. To learn how each type is configured and reported, see Get Started With Service Charges and Mandatory Gratuity.

Can I use a service charge to pass credit card fees to customers?

You cannot use the service charge feature to pass credit card fees to customers. A fee applied only to credit card payments is a credit card surcharge, and the service charge feature was not designed to support it. Toast Credit Card Surcharging is the only compliant way to apply credit card surcharges on the platform. See Surcharging Overview.

Why is a service charge or gratuity being added to every check?

A service charge or gratuity can apply to every check when the Apply After Amount Threshold is set to $0.01 or more, when the dining-option boxes are left unchecked, or when a service area is set to auto-apply gratuity. For help finding and changing these settings, see Service Charge or Gratuity is Being Added to Every Check.