A controversy erupted in LA after an eatery allegedly charged a mandatory 20% tip plus an administrative fee. The restaurant’s website explaining the fee policy. [Web capture]
Recently, amid growing attention over a restaurant in the Koreatown area adopting a policy to accept only a 10% tip, the public release of a restaurant bill adding a virtually mandatory tip and a separate administrative fee has reignited the controversy surrounding extra fee practices in the food service industry.
Recently, a customer who dined at a restaurant in Los Angeles shared a receipt on the LA community board of the online platform Reddit, revealing that they had paid an additional 25% in extra charges on top of their food bill.
The restaurant at the center of the controversy is ‘Uca Terraza’, a rooftop restaurant and bar in downtown LA. According to the receipt shared by the customer, a mandatory 20% tip of $33 and a 5% ‘Admin Fee’ of $8.25 were added to the food total. With a food bill of $165, an extra $41.25 was added, meaning the customer paid an additional 25% of the food cost separately, excluding taxes and voluntary extra tips.
With a sales tax of $20.11 also applied, the final payment came out to $226.36. This means the customer paid an additional $61.36—roughly 37.19%—on top of the $165 food total.
Understanding the Surcharges and Taxes
The sales tax of $20.11 listed on the receipt matches the application of a 9.75% tax rate to the combined total of $206.25 for the food, mandatory tip, and administrative fee. This appears to have been calculated using the pre-increase tax rate of 9.75% rather than the city of LA’s sales tax rate of 10.25%, which went into effect on the 1st.
In California, unlike tips voluntarily given by customers, mandatory tips and service charges imposed by restaurants are generally subject to sales tax. Consequently, when including the tax levied on the $33 mandatory tip, it amounts to about 21.95% of the food cost, while the $8.25 administrative fee accounts for roughly 5.49% of the food cost when including tax.
When the sales tax for the food itself is added to these amounts, the consumer’s total additional financial burden exceeds 37%. However, the taxes levied on tips and fees are not additional revenue for the restaurant, but rather taxes remitted to the government.
The user who uploaded the post expressed frustration, stating, “The prices were already quite high relative to the portion sizes,” and adding, “It is excessive to mandate a minimum tip amount while also tacking on an administrative fee.”
Consumer Backlash and Industry Practices
In particular, this controversy has drawn attention because the restaurant billed customers separately not only for mandatory tips but also for labor and employee benefits required to run the establishment.
The restaurant notes on its menu that a 20% tip is automatically added to all bills, and a 5% additional fee is charged on food and beverage sales. The restaurant explained that the 5% fee is not a tip, but is intended to cover rising employee wages and benefit costs.
However, online criticism has poured in, arguing that restaurants are shifting their operational expenses onto consumers.
One user pointed out, “If it’s a restaurant like this, it’s highly likely that the extra fee won’t actually go to the servers.” Another user, claiming to have worked in the LA food service industry for over 10 years, expressed strong dissatisfaction, stating, “I’ve never even heard of an item called an administrative fee.”
Legal Context in California
That said, imposing such additional charges is not strictly illegal.
In California, the ‘Honest Pricing Law’ took effect in 2024, regulating practices that subject consumers to hidden extra fees.
Under California law, restaurants may impose additional fees as long as they clearly and transparently disclose the fact that extra fees apply and state the amounts to customers in advance. However, because mandatory tips and service charges are generally subject to sales tax, the consumer’s actual financial burden may increase further.
Experts point out that even if extra fees are disclosed in advance, if consumers perceive them as unreasonable, it can have a negative impact on the restaurant’s image and customer return rates.