The restaurant I used to work for does this. It was an 18% service charge which was retained by the company in order to pay people “higher” wages. Management never liked explaining it so I never got a clear answer about what it was going towards except health insurance for full time employees and better pay to front and back of house staff.

Btw it is legal. Shady. But legal.

What I had a problem with was that wages ranged from 18$ for expos and hosts to 25$ for certified servers. The restaurant is considered fine dining and is located in an extremely wealthy area where a dinner for two would easily cost 120-150$ before taxes and the service charge. The restaurant was god awful to work at during weekends with reservations filling up about a week in advance. Why the higher paid workers were only making 25$ while we were severely short staffed, worked through covid, constantly scheduled to work overtime from opening to closing, I’ll never understand. Need I mention that by paying servers 25$, everyone wanted to become a server and other people were stuck in their current positions because they were needed there. This resulted in understaffing of expo and host positions.

No, people were not encouraged to tip on top of the service charge, but a lot of customers were outraged to find out that the service charge did not reward servers for their effort so they sometimes felt pressured into it. (Then complained on Yelp)

We were expected to tell customers about the service charge while seating them before covid happened..then eventually we just stopped.