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Service-Fee Silliness: 28 Percent for F&B Functions?

The alarming rise in the percentages for service charges around catering and other meeting elements requires proactive responses from planners.

As a 23-year planning veteran, Tom Tolvé, CMP, HMCC, rarely gets surprised in the course of organizing meetings for pharmaceutical firm Beigene. But in the past few months, one thing has made him do a double take: a big hit to his event budgets in the form of increased prices for F&B as well as the corresponding service charges. That’s because when the cost of F&B goes up, so does the amount that must be paid in service charges, which in the recent past have generally run between 18 and 22 percent.

But here’s where the sticker shock is really hitting
Tolvé: “I just got my first contract that had a 28-percent service charge!” What’s more, “service charges for AV and room rental are also becoming standard, even though they didn’t exist not so long ago.”

Meetings-industry attorney Barbara Dunn, partner at Barnes & Thornburg LLP in Chicago, says that with the event contracts she’s worked on recently, “I am seeing higher service fees/gratuities, in a range from the low 20s to up to 28 percent.”

To counter the effects of such high service-charge percentages—which have proven to be difficult for planners to negotiate down—“the key is to negotiate on the price of the F&B items themselves” so that the total amount paid in service charges will also be lower. “Focus on the baseline charges; that’s the needle you can best try to control.”

Then again, one tactic that might bring results on the service-charge percentage is to require the venue to specify in the contract how much of the service charge or “gratuity” listed in the contract goes to the staff who work the event. “Some states require that there is disclosure and reporting on that,” says Dunn. Even if it’s not required, “I would recommend asking the hotel, or the destination management organization” if the event is taking place at an off-site venue.

Planners could push for such clarification in their event contracts as a way to start a negotiation of high service charges. In this article in Hotel Management, James McDonald Jr., a managing partner for the labor- and employment-law firm Fisher & Phillip, explains that “there is no legal requirement that a gratuity or service charge be collected and paid to service employees. Banquet servers and bartenders often are paid a higher hourly rate than their counterparts in [retail] food-and-beverage outlets in recognition of the fact that the former typically will not enjoy the same level of tip income as the latter. If a mandatory charge is to be added, however, [hotels] should be transparent about where the money will go. Including a mandatory ‘service charge’ on a banquet contract and not paying the money to employees who performed the service will be risky going forward. If the house wishes to retain a portion of the charge, the portion retained should be identified [in contracts] as a ‘management fee,’ ‘setup fee,’ or similar term so that it is clear the money will not go to employees. Similar care should be used with respect to charges such as ‘corkage fees,’ ‘carving fees,’ and the like.”

In other words, says Dunn, if a planner notes during negotiations that the “service charge” is not going to the workers who serviced the event, the planner might be able to get the property to come down on the cost of the F&B items or on the percentage of the “service charge.”

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