California Restaurant Association

Legal Center Live: Proceed carefully when using surcharges

Q: Our restaurant would like to add a surcharge to help pay for employee health care. It would be noted on the menu. Is this legal?

As restaurants prepare to deal with the extra costs associated with the Affordable Care Act, surcharges are a popular legal topic.

In San Francisco, restaurant operators have been dealing with the issue already, as the city's mandatory health care ordinance has prompted many restaurants to charge diners various kinds of fees to pay for employee health care. It is legal to add a surcharge on the bill, as long as the customer knows up-front what the charge is used for and how much it will cost.

Some of the legal issues that surround the surcharge include a determination by the Internal Revenue Service that the money collected by the surcharge must be distributed to employees as wages. This determination will affect an employee's overtime rates and can complicate payroll systems.

In addition, restaurants in San Francisco are required to report the amount collected in surcharges and compare that to the actual costs of the mandatory health care. If there is a balance, the money must be given to the employee in the form of wages. This is likely how many local municipalities will deal with the surcharges, so caution is advised in how operators initially set up their surcharge systems and amounts.