What Is a Surcharge? (Plus Different Types of Surcharges)

By Indeed Editorial Team

Published May 14, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Companies apply surcharges to receipts and bills when they require payment for additional fees or services. This can occur because of additional labour or unexpected events during service delivery. By knowing more about additional fees, you can improve the company's operations and apply additional fees correctly. In this article, we discuss the definition of a surcharge, explore the different types of additional fees, and answer several answers to frequently asked questions about additional fees.

What is a surcharge?

A surcharge, otherwise called additional fees, refers to additional costs on the original prices of goods and services. Consumers pay additional fees to offset the higher cost of a particular product or fee. For example, a farming company can have an extra additional fees on their produce to cover the cost of the labour used to harvest food. Businesses typically don't include charges after a consumer agrees on the price of a product or service, but they can provide disclaimers that discuss potential charges beyond the initial price.

Surcharges differ from cesses, which companies calculate following the complete cost of purchased products or services plus the additional fees and taxes. Taxpayers receive cess to pay for a particular purpose, like income tax amounts. Companies also can't charge additional fees to consumers who pay with debit cards instead of cash, a check, or a credit card.

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Who uses additional fees?

Many businesses and organizations, including governments and service professionals, use additional fees. These additional fees can often change over time because they can include the costs of potential obstacles, or they can include prices for goods and services that the original price didn't include. Companies can include additional fees instead of changing prices to consider conditional changes in the value of products and services. For example, construction companies can include additional fees for large projects because they can experience obstacles while building structures, like unexpected materials during the excavation process.

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How do surcharges work?

Additional fees work by adding another cost to the total price of an item or service. Additional fees can be a predetermined dollar amount or a percentage of the total price. Businesses and service professionals can choose the best format for pricing, depending on their business model. Companies typically calculate the potential additional fees during the consultation and provide the client with an official amount during the transaction process.

It's beneficial to communicate with clients before charging them additional fees because this prepares them for the charges, but some companies may charge clients without this discussion if they communicated clearly during the consultation. Businesses typically provide clients with documentation that details additional fees.

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Types of additional fees

Here's a list of examples of additional fees:

Gratuity

Companies like restaurants can have additional fees, otherwise called gratuity, to compensate for the cost of employee labour. This can help restaurants pay their servers a fair wage instead of relying on customer tips. Similarly, a food delivery service can implement additional fees to compensate drivers for gas and vehicle maintenance.

These additional fees often appear in a consumer's bill, which allows them to review the full amount before they pay. Gratuity is typically a percentage of the total bill. For example, if a customer spends $30 on their meal and the restaurant can charge a 15% gratuity, which amounts to an extra $4.50 on the customer's bill.

Regulatory recovery fees

Recovery fees typically appear on utility bills, including cable, internet, and electric services. Utility companies typically create these additional fees to pay the fees the local, provincial, or federal government bodies charge to regulate the distribution of utility services. Regulatory recovery fees can be either specific dollar amounts or percentages of a bill, depending on the company.

Additional service fees

Service professionals can charge clients for additional service they perform outside their regular work. For example, a mechanic can charge a disposal fee for customers who don't want to dispose of their used tires themselves. This can help business professionals budget for non-regular fees they face, like the disposal of hazardous or illegal trash items.

Filing fees

Some businesses can have an additional fee to compensate for the effort of filing or submitting applications. For example, a loan officer can implement a predetermined fee to pay for the official paperwork they must file on a consumer's behalf. This is common for lending organizations and rental companies. You can also find a similar fee with large applications, like college applications, to pay for the professional effort that reviewing an application requires.

Filing and documentation additional fees both compensate for the effort professionals use to record and finalize client submissions, and to pay for additional tasks, like research or fees like background checks.

ATM fees

ATM fees are common for ATMs, and consumers of any bank can experience them. Typically, banks charge a specific dollar amount because when a customer of a separate bank or financial institution uses their ATMs. The exact amount charged to customers varies depending on the bank, and they typically provide the bank with their approval before continuing the transaction. Some banks also expect customers to sign their name before processing the transaction.

Checkout fee

Companies typically pay processing fees for credit cards, which is why they can include a checkout fee to pay fees. These fees are dollar amounts and are often less than $10 for consumers. Companies typically pay a processing fee for credit cards, and some organizations add a checkout fee to cover the expense. This is to help ensure that each purchase can pay the processing fee while still allowing the business to profit from the sale.

For example, if a business pays a $2 processing fee for each purchase made with a credit card, they can charge every customer who uses a credit card a $2 additional fee, or only apply the fees to customers who use their credit card for a purchase with a total that is $2 or less.

Same-day processing fee

Utility or other billing companies can use a same-day processing fee to cover the cost of a customer paying a bill on the same day that it's due. This is common for over-the-phone and online payments. This fee usually appears as a certain dollar amount, which customers agree to when they use the same-day service. Customers who want to avoid this fee can pay their bill in advance, before the day of the deadline.

Residential shipping fees

Residential fees refer to fees on deliveries made to residential addresses. These addresses can include businesses or professionals who work remotely. Companies typically charge additional delivery fees for every shipment delivered to a residential address. This differs from delivery area fees, which refer to charges to addresses beyond a specific range.

For example, a profession who works from home can purchase supplies and incur a 5% shipping fee. If the professional lives beyond the range of the shipping company, they can subsequently incur an additional fee of $2.

Frequently asked questions about additional fees

Here's a list of answers to FAQs about additional fees:

Are additional fees legal?

Additional fees are legal because professionals and companies typically inform clients of potential fees before providing services or products. These charges are typically legal unless indicated by the provincial or federal laws and legislation. Credit card companies that charge additional fees typically require complete transparency, and they have particular institutional regulations to follow.

Can merchants change additional fees?

When companies and customers agree to terms of payment, it becomes difficult to change those terms. Merchants can change the overall amount of services or products paid by consumers if they require the addition of fees on the final receipt, but they communicate with consumes about those fees before charging them. It's uncommon for merchants to change additional fees after discussing them with clients or consumers.

How do companies calculate additional fees?

The precise calculation of additional fees depends on the company's industry. For example, companies in the fuel industry can implement additional fee ranges. They can subsequently decide to implement additional fees when the price of fuel extends beyond a specific threshold. If a company's fuel prices extend beyond $3 per gallon, they can implement an additional fee of 4%. When the price extends further into price ranges, they can experience higher interest rates. For example, a company with a fuel price of $50, you can increase the additional fees.

A fuel company can calculate their additional fees by subtracting the fuel threshold from the price per gallon. From here, they can divide the amount by the miles travelled per gallon.

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