Can employers deduct credit card fees from tips?


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PostPosted: Thu Aug 21, 2014 11:55 am
http://www.moneytalksnews.com/2014/08/20/restaurant-owners-rescind-controversial-policy-that-cut-the-waitstaffs-tips/

After Minnesota passed a higher minimum wage, a restaurant owner tried to offset the cost by requiring servers to pay the 2 percent credit card fee when diners use plastic to pay for their tips.


AS I understand it, they were requiring the servers to pay the 2% ONLY when a tip was entered on a credit card. Also, as I understand it, it doesn't matter, since that would be the employer telling them they couldn't have the tips that are their own property and we all know, as gregster loves to repeatedly say:

A tip is the sole property of the tipped employee.


Surprised that not a single thing can be found of someone questioning the legality of this, only that it happened in general and the outrage it inspired.

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PostPosted: Thu Aug 21, 2014 6:09 pm
tompace wrote:http://www.moneytalksnews.com/2014/08/20/restaurant-owners-rescind-controversial-policy-that-cut-the-waitstaffs-tips/

After Minnesota passed a higher minimum wage, a restaurant owner tried to offset the cost by requiring servers to pay the 2 percent credit card fee when diners use plastic to pay for their tips.


AS I understand it, they were requiring the servers to pay the 2% ONLY when a tip was entered on a credit card. Also, as I understand it, it doesn't matter, since that would be the employer telling them they couldn't have the tips that are their own property and we all know, as gregster loves to repeatedly say:

A tip is the sole property of the tipped employee.


Surprised that not a single thing can be found of someone questioning the legality of this, only that it happened in general and the outrage it inspired.

Well, each State is allowed to regulate this act. There are States that allow the employer to pass on this sort of cost on to the employee. There is nothing inherently illegal in this or immoral. The employer is only expecting the employee to pay that percentage (usually 2-3%) that the credit card company charges. That means that if the employee received a $3 gratuity on a credit card, the employer would receive $3 - 2% or $2.94.

Now if the State specifically does not allow this to happen, then the employer would be in violation of State law. This issue is not about denying the employee their property, it is about the cost of providing that employee their property. I know of some employers that charge their employees the max amount they are allowed to by law, which is the same amount that their credit card processing company charges them, for the convenience of the employee being able to accept credit card gratuities. I also know companies that eat the cost of the fee and do not pass it on to the employee.
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PostPosted: Thu Aug 21, 2014 6:24 pm
Follow up... just by using Google, although I knew this already. This article is specific to Texas, but does reference the FLSA.

When can employers deduct credit card fees from tips? - The Kielich Law Firm - Bedford, Texas
http://kielichlawfirm.com/can-employers ... fees-tips/

Today’s society is moving increasingly towards becoming a paperless society and that includes the way we pay for goods and services. It is rare that people pay in cash (and even more rare to pay by check), especially with the reward systems attached to credit cards. The convenience of throwing down plastic comes with a price, at least to the business owners. Credit card processors charge a fee for processing these transactions. These credit card fees may include per-transaction fees (sometimes called swipe fees) as well as monthly or annual fees. Many businesses find ways to add these fees back into the cost of goods and services to pass them back to consumers. When you eat at a restaurant and pay with a card, those processing fees will be charged to the restaurant. Now the restaurant may have added an extra quarter to the cost of your meal to make up for the fee but you also tipped, right? The portion of the tip on the bill also gets hit with the swipe fee so the employer must either choose to eat the swipe fee on the tip or pass it along to the tipped employee. Many restaurants pass these costs on to their tipped employees just like they do to their customers. Is this legal? Yes.

Restaurants can pass credit card fees on to tipped employees

Under the Fair Labor Standards Act and Texas Payday Law, tipped employees are generally entitled to receive the entirety of the tips received from their customers with a very limited set of exceptions. One of those exceptions includes a lawful tip pool (in which a portion of tips are shared by the service staff and their assisting staff, such as barbacks and busboys). Another exception recognized by the FLSAand Texas Payday Law includes deductions for credit card fees. The Department of Labor regulations permit restaurants to deduct credit card fees from tips provided by customers by credit card. The federal courts, interpreting the regulations and Fair Labor Standards Act, have affirmed the deductions.

What is interesting, perhaps disappointing, is that the courts give restaurants some flexibility in the percentage withheld from tips to pay for credit card fees. Many restaurants hold a flat percentage to cover fees and the courts have approved that policy in many cases where the percentage did not closely track the percentage charged by the credit card processor as a swipe fee. One can argue that this makes sense because the employers often pay a monthly or annual fee on top of the swipe fee for credit card processing and the tip portion of the bill relies on payment of that periodic charge to be paid by the employer so perhaps a portion of that periodic charge ought to by shouldered by the tipped employee. On the other hand, the periodic charge is part of the restaurant doing business by credit card and the restaurant would pay that fee regardless of whether the tips were left on the credit card or by cash so the tipped employees should not be responsible for shouldering the cost of doing business.

There are some limitations to the permitted deduction:

The deduction cannot reduce the employee’s wages below minimum wage;
The employee must receive the credit card tips, less the deduction, by the regular pay day even if the credit card processor has not processed the payment;
The employer must track the deductions as part of its tip recordkeeping process.

There is conflict between some courts and the Department of Labor whether several tip regulations, such as this one, apply in the rare exception where a server receives the full minimum wage ($7.25) or more but still receives tips. The Department of Labor contends tips belong to the employee regardless of whether the tip credit, reducing minimum wage from $7.25 to $2.13, is enjoyed by the employer. The Ninth Circuit Court of Appeals, which oversees the federal courts on the west coast, interpreted the Fair Labor Standards Act to say otherwise. That conflict is unresolved for Texas but in the rare instance where your employer does not take the tip credit on your pay then you may see some different rules apply to the tips you receive.




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PostPosted: Fri Aug 22, 2014 11:10 am
Meh, I'm no lawyer, but it seems ridiculous to me. The credit card company already charges the restaurant the fee, regardless of whether a tip was put on it or not...seems like it is taking employees tips to recover some of the cost of the business. I mean it's not like the card gets charged twice, the tip is added in during reconciliation when manager runs end of day processes.
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PostPosted: Fri Aug 22, 2014 12:37 pm
Good job again elric, but don't you remember we already covered that here! :D 8-)

Posted: Sun Mar 11, 2012 11:39 pm
This fact sheet has been revised:

http://www.dol.gov/whd/regs/compliance/whdfs15.htm

Wage and Hour Division (WHD)

(Revised March 2011) (PDF)

Fact Sheet #15: Tipped Employees Under the Fair Labor Standards Act (FLSA)

excerpt:
Credit Cards: Where tips are charged on a credit card and the employer must pay the credit card company a percentage on each sale, the employer may pay the employee the tip, less that percentage. For example, where a credit card company charges an employer 3 percent on all sales charged to its credit service, the employer may pay the tipped employee 97 percent of the tips without violating the FLSA. However, this charge on the tip may not reduce the employee's wage below the required minimum wage. The amount due the employee must be paid no later than the regular pay day and may not be held while the employer is awaiting reimbursement from the credit card company.


and from the same thread as above:

States that prohibit deductions from Credit Card tips for processing Fees


The following states do not allow employers to deduct a certain percentage from a server’s credit card tips for processing fees.

Alaska
California
Colorado
Montana
Nevada
Oregon
Washington*
New Mexico and Idaho * Employer may take the deduction only if the employee agrees to the deduction and signs a written waiver

Published by Gina Deluca, May 17th, 2010 11:32 am

EDIT:

*The state of Washington allows the practice but enforces a disclosure law. In Washington, restaurant owners who deduct tip processing fees from employee wages are required by law to disclose this information to patrons, giving them the option to tip in cash. However, servers are not allowed to suggest or solicit cash tips.
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PostPosted: Fri Aug 22, 2014 12:46 pm
tompace wrote:Meh, I'm no lawyer, but it seems ridiculous to me. The credit card company already charges the restaurant the fee, regardless of whether a tip was put on it or not...seems like it is taking employees tips to recover some of the cost of the business. I mean it's not like the card gets charged twice, the tip is added in during reconciliation when manager runs end of day processes.


But it is not a flat fee in all cases. Most CC companies charge a fee that is a percentage of the TOTAL amount charged, so if the tip is on the card, then the restaurant is charged even more. The law says that the restaurant may pass on that fee for the tip portion of the bill to the employee.

The irony is in the fact that businesses will go to such great lengths as to pass on a fee of even a few pennies onto their employees, but balk with indignation when we claim that we are being underpaid as much as whole dollars or more per run in mileage reimbursement!
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PostPosted: Fri Aug 22, 2014 7:15 pm
gregster wrote:But it is not a flat fee in all cases. Most CC companies charge a fee that is a percentage of the TOTAL amount charged, so if the tip is on the card, then the restaurant is charged even more. The law says that the restaurant may pass on that fee for the tip portion of the bill to the employee.

The irony is in the fact that businesses will go to such great lengths as to pass on a fee of even a few pennies onto their employees, but balk with indignation when we claim that we are being underpaid as much as whole dollars or more per run in mileage reimbursement!


Yeah it is still a cost of doing business kind of thing, at least to me. I feel like employees shouldn't have to pay for anything that the business ALREADY has to pay for. It'd be different if a customer says they wanna pay with something outrageous (such as bitcoins) and the business has no way of accepting that.

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PostPosted: Sat Aug 23, 2014 4:34 am
tompace wrote:
gregster wrote:But it is not a flat fee in all cases. Most CC companies charge a fee that is a percentage of the TOTAL amount charged, so if the tip is on the card, then the restaurant is charged even more. The law says that the restaurant may pass on that fee for the tip portion of the bill to the employee.

The irony is in the fact that businesses will go to such great lengths as to pass on a fee of even a few pennies onto their employees, but balk with indignation when we claim that we are being underpaid as much as whole dollars or more per run in mileage reimbursement!


Yeah it is still a cost of doing business kind of thing, at least to me. I feel like employees shouldn't have to pay for anything that the business ALREADY has to pay for. It'd be different if a customer says they wanna pay with something outrageous (such as bitcoins) and the business has no way of accepting that.

Do you know the cost of transmitting a payment via bitcoin? And accepting bitcoin is not outrageous it's just a differnet method that what is currently used. I'm considering putting a bitcoin decal on my clipboard to see if anyone bites. I'm lazy though and haven't gotten around to doing that though.

By the way...
Bitcoin Transaction fees
Sending

A transaction may be safely sent without fees if these conditions are met:

It is smaller than 1,000 bytes.
All outputs are 0.01 BTC or larger.
Its priority is large enough (see the Technical Info section below)


Now let's take a transaction of $50 USD, assuming 1 bitcoin is worth $500 then you would be sending 0.1, whcih means no fee... free... 0.

Now let's transact $50 using Visa and their customary 3% fee. $50 * .03 = $1.5 that the business just paid a third party.

Ok... anyways...
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PostPosted: Sat Aug 23, 2014 5:06 pm
heh i only vaguely know anything about bitcoin...it was just the only non cash/credit/check form of payment i know about

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PostPosted: Sun Aug 24, 2014 3:58 am
tompace wrote:heh i only vaguely know anything about bitcoin...it was just the only non cash/credit/check form of payment i know about

I could tell.. that's why I did not go into more detail explanation of how a transaction over the bitcoin network is charged.
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