SF restaurants cheat on health care


For years, I've wondered about those "health-care surcharges" that pop up on menus at local restaurants. The owners say they have to charge extra to pay for the city's health-care ordinance, which always struck me as odd: You don't see "avocado price hike surcharge" or "rent-went-up" surcharge or "PG&E rate hike" surcharge -- restaurants, like other businesses, typically roll those factors into their normal prices.

This is political: A lot of restaurants opposed the law, which requires employers to pay for health insurance, and they're sticking that little sign out there to make San Franciscans think the government is driving up the price of a meal.

Now: I would actually be willing to pay an extra 3 percent or even 5 percent for a nice dinner if I thought that money was going to make sure the cooks and waiters and bus staff could go to the doctor when they get sick. But it turns out, according to the Wall Street Journal, that we're getting scammed -- the surcharges often don't go for health care at all. The restaurants just pocket the money.

In an investigation of 40 local restaurants -- most of them high-end places where dinner for two can cost $100 or more -- the Journal found that the vast majority of the money collected for health care never goes to the employees:

One Market, which says its annual revenue exceeds $5 million, is one of at least 40 San Francisco restaurants identified by The Wall Street Journal that tell customers they are charging extra in the name of health-care benefits, but which end up spending less than a third of what they allocate. The data come from forms that restaurants filed with the city, which the Journal obtained under California's public records law. No restaurant mentioned in this article disputed the data.

Wayfare Tavern, the downtown restaurant owned by celebrity chef Tyler Florence, says on its menu that it adds 3.5% to every bill to cover health-care costs. Last year, it earmarked $63,724 for health care but only spent $6,013, the city data show. Café Flore, which adds 35 cents to every bill in the name of health care, spent nothing on health expenses for its employees last year. Trademark, which has a 3.5% surcharge, also spent nothing on employee health expenses last year, the data show.

Worse, this appears to be an intentional way to skirt the law:

In most cases, the plans are administered by a third party. Some of these companies tout how HRAs are a loophole around the San Francisco Heath Care Ordinance. "If the funds are not needed (And many are not!!!) the employer wins because the unused funds stay with them…not the City," says a brochure from BeneFlex HR Resources Inc.

BeneFlex ensures restaurants inform workers about the HRA to "make sure it's handled the way it's supposed to," says Mark Schmersahl, the firm's vice president. Still, he says, "There are going to be times when the employer comes out ahead."

I recognize that the city puts a lot of demands on small business, and a lot of them are expensive -- and again, if a restaurant owner has to raise prices a few percentage points to pay for health insurance, I'll pay -- that's the price of eating out in San Francisco.

But this isn't how the health-care law was supposed to work -- and it's the reason Sup. David Campos is trying to change it. Campos has a bill that would stop employers from keeping money that was supposed to go for health care. "It's also a consumer-protection law," Campos told me. "People are being defrauded here."


I hope it passes. I eat out a lot and the health care surcharge really irks me. It's tacky, but it's more than that. The article hits it spot on when you say that they don't add a surcharge for PG&E and other stuff. This is the restaurants' way of giving the middle finger to the city of San Francisco and its laws, showing just how much disdain they have.

The funny thing is that I ate at Wayfare Tavern on recommendation of the Guardian. I liked the food, but maybe the Guardian should stop recommending restaurants that add this surcharge (or at least identify the ones that don't). I try to eat at the ones that don't do that, but it's not always easy. Up till now, all I can do is complain to the management (which I do) and write a note about how assinine that their practices are, in places like Yelp and Tripadvisor (which I also do). But if there's a way to plug that loophole, I'm all for it!

BTW, I have absolutely nothing against paying more for good laws that ensure workers are covered by healthcare. If they just raised their prices, I'd be fine with that. But making a big show of how much they hate the city -the city that's responsible for their profits, incidentally -well, that's just ugly. If they really hate us that much then maybe they can peddle that $25 lobster cobb salad in Omaha Nebraska where taxes are low and you can get away with paying your employers shit wages and no health care or sick leave. Let's see how long they stay in business there!

Posted by Greg on Sep. 22, 2011 @ 4:31 pm

That's sales tax, SF health surcharge and of course the tip or service charge.

Other costs like utility charges are not directly proportional to the cost of the meal, so it makes no sense to show that separately.

One effect of adding that 4% to the bill is that customers will now tend to tip less, in offset the cost increase. And because they figure that the restaurant staff are now saving money on their healthcare, and so need less income.

Personally I think the 4% surcharge should be voluntary.

Posted by PaulT on Sep. 22, 2011 @ 5:09 pm

Health care is no moreso "directly" proportional to the cost of a meal than utility costs are. Both are general business expenses and don't need to be itemized.

I do agree that one effect of itemizing the health care is that customers tend to tip less as a result, because they feel that the money goes to the workers. That's a very strong argument for making sure it does indeed go to the workers.

Posted by Greg on Sep. 22, 2011 @ 5:38 pm

made proportional to the cost of a meal by the City mandate. Instead of requiring employers to put in $n per employee, it instead mandated 4% of revenues.

The result of that is of course that the monies collected are unlikely to be exactly equal to the amount that healthcare actually costs. It will either be too much or too little.

And if the business finds cheaper healthcare for it's employees, then naturally it will retain the surplus, in the same was as with any other cost reduction. It was never clear to me why the City is meddling in the finances of small businesses anyway. Restaurants with better benefits will attract better staff anyway. While some places can't afford the additional cost, and close as a result, which helps nobody.

And yes, I'm sure tips are down as a result. If I was going to tip 20% and see an extra 4% charge "for the workers", then my tip will be 16% to achieve the same spend as I had budgeted.

Posted by PaulT on Sep. 23, 2011 @ 6:03 am

I wrote this to a restaurant owner on 6/20/2011:

"Those sneaky "health care" surcharges—not revealed by your website—are exposed in today's SF Examiner to be completely unjustified by the city's legislation. (The Golden Gate Restaurant Association proposed them as retaliation after failing to persuade the voting public.) Very few restaurant owners impose them. Please let me know whether you will stop this practice so that my family can happily return."

No reply.

SF Supervisor Campos is correct—without action, this scam continues.

Posted by Bobby on Sep. 23, 2011 @ 8:57 am

and you have made yours.

Don't go there, problem solved.

Posted by meatlock on Sep. 23, 2011 @ 1:33 pm

No, the problem isn't quite solved. If an employee does need health care, and the cost exceeds the paltry amount left in these funds from year to year, guess who picks up the tab?

Posted by pdquick on Sep. 23, 2011 @ 4:43 pm
Posted by Guest on Sep. 23, 2011 @ 3:03 pm

It's about time the cities so called progressive used their dollars for their agenda instead of making more laws.

Posted by meatlock on Sep. 23, 2011 @ 3:50 pm

What a disaster. So not only are the employees not collecting on the surcharge, they are receiving a lot less in tips. Maybe it's a better idea for SF to leave small businesses alone. Don't you luv all the campaigning about "helping small businesses."

I note Prop C support is crumbling over this battle but that's a good thing. We need stronger pension reforms.

Posted by Guest on Sep. 23, 2011 @ 9:25 am

So the restaurants are cheating their employees and the taxpayers who ultimately foot the health care bill for their care, and you think the problem is overregulation? Seriously?

Posted by pdquick on Sep. 23, 2011 @ 4:45 pm

stoop to this level of micro-management and control freakdom over private businesses, then it will cause more problems than it will solve.

The benefits that a business elects to offer to it's employees is essentially a market decision - those offering better benefits should be able to attract and retain the best staff. Having a rule or law that takes away that discretion inevitably leads to resentment and civil disobedience by those business entities that yearn to be free.

Other things equal, I'd always prefer to frequent an establishment that stands up to bureaucracy and municipal over-reach. And not just because meals there will be 4% cheaper. I'd rather tip 4% more and let employees choose how to spend the money, rather than have some mindless pen-pushing, paper-shuffler tell them what to spend it on.

Talk to any businessman these days about their number one problem and it's always the same answer - too many regulations.

Posted by PaulT on Sep. 23, 2011 @ 5:48 pm

Looks like you're taking a page right from the right wing's Washington D.C. playbook.

First, you purposely undermine the SF Health Care plan so that many of the funds don't properly go to the employees, and -then- you claim that since the money isn't properly reaching employees, the health care plan should be repealed.

You and Carl Rove should get a room...

Posted by Eric Brooks on Sep. 23, 2011 @ 10:57 am

Over being taxed by Pete Wilson so that the Guardian could pay it's "fair share"?

Posted by meatlock on Sep. 23, 2011 @ 11:05 am

Take that you damn pergresssives!

How do you like the taste of justice, Matlock style?

Posted by Guest on Sep. 23, 2011 @ 11:57 am

The ordinance benefits small businesses and their communities, yet the largest corporate restaurants in the Golden Gate Restaurant Association pushed for official-looking fake tax recaptures after losing the election.

This was intended to further GGRA's anti-regulatory "spin," creating a phony punishment for the public for daring to restore this responsibility to employers.

Healthy markets require the disclosure of prices, GGRA. Those caught stealing from diners and workers should repay every cent of the pocketed fake taxes.

Posted by Bobby on Sep. 23, 2011 @ 12:03 pm

"The ordinance benefits small businesses and their communities"

How so? You're not using "communities" as a meaningless buzz word are you?

Second paragraph you put spin in quotes then say that law restores responsibility to employers. When was this a responsibility of the employers? It's been a benefit that some businesses have offered to it's employees, this is coercion.

That last paragraph is puzzling, what tax, it's a surcharge.

Posted by meatlock on Sep. 23, 2011 @ 1:31 pm

my employer just gave me a months notice to spend my HRA money as they have made the decision not to roll over our funds. I can't help but feel this is a deliberate way to keep the funds for themselves.

any legal advice through the investigation in this article?

Posted by Guest on Dec. 03, 2011 @ 7:56 am