[rjett]

I suspect the reason business owners don't opt for a service charge in lieu of gratuity for front of house employees is due to payroll taxes. "Adjusting prices accordingly" vs adding a service charge would, in most cases, screw the employee and reward the business owner, who might give a slightly higher wage to his employees, but would be tempted to pocket the difference as profit.

Under the current system, so much gratuity is left unreported/underreported due to cash tipping. Business owners have no incentive to keep track of employee tips paid in cash; otherwise, they would be required to pay payroll taxes on the tips going into their employees' pockets. This is changing, as more and more transactions are conducted via credit instead of cash, so tracking is easier.

Under a service charge model, everything would have to be tracked and reported, resulting in a higher tax burden to the business owner. In the food service industry where profit margins are thin and reputations can be shattered overnight, it's tough to find a comfortable space between tax law, ethical employment practices, and keeping your business afloat.

[analyst74]

Going into a fixed service charge model will force staff to pay more taxes, lowering their take home pay, which in turn forces businesses to either up their pay, or up the % of service charge.

Ultimately, it means more taxes for the government, primarily from people who dine out a lot.