NH Legal Perspective: Service charges tip toward employers

This article, written by Autumn Klick and Aaron Rosenberg, was originally published by the NHBR and can be found here.

If you have recently ordered takeout or eaten at a restaurant, you may have noticed an automatic mandatory service charge applied to the bill. You also may have thought that this service charge was a traditional tip that would go directly to your server.

But in New Hampshire that may not be the case. On July 28, 2023, Gov. Sununu signed Senate Bill 269 into law, which defined the term “service charge” separately from the definition of “tip.” Prior to this bill, service charges were treated the same as tips, which means they automatically became the employee’s property, not the employer’s, and, for the consumer, there was likely a negligible difference.

Since Senate Bill 269 became law, service charges no longer share a definition with tips. Instead, these charges are considered the employer’s property; the employer chooses the amount to be charged, and can distribute what it collects as it sees fit. This means that if you pay a service charge, you may want to tip your specific service provider — in addition to this charge — because they may not receive the service charge.

But this change may actually lead to more service workers receiving additional wages, on top of the set cost of goods or services.

For example, imagine you place a large takeout order from a restaurant, and multiple employees assist. One person makes the salads, one person writes the names of who ordered what on each to-go box, and one person checks that every order is correct. If you leave a tip on that takeout order, one person is likely to receive that tip. However, if the employer includes an automatic, mandatory service charge of 15%, the employer can distribute the charge to all employees who assisted.

As another example, a nail salon may charge a service fee. While you may only work with one employee, there are other employees working behind the scenes answering the phone, booking future appointments, cleaning the towels, and doing other tasks. Service charges help the business provide for that type of support without needing to increase the price of its services.

You may have thought that this type of sharing arrangement had been common in the past. However, in New Hampshire, tip sharing agreements cannot be mandated or required. That means that employees only share tips if they voluntarily decide to do so. It also means that employers can have minimal influence on how tipped employees choose to share with other employees. In fact, before Senate Bill 269, employers were forbidden from discussing tip share agreements without employees initiating the conversation. Additionally, prior to the law change, employers could not document any agreed upon tip share practices.

Now, Senate Bill 269 permits employers to have more open discussions with their employees regarding compensation sharing. They can clearly describe how service fees will be divvied up and seek to equitably spread amounts throughout their staff. And, as a consumer, you may have more information about where amounts you pay on top of the cost of goods and services may end up.