Is it legal to pass on the expense of credit card processing on gratuities to the server?
– Dina Fremin, Owner, Fremin Investments, Thibodaux, LA
Let’s imagine an eighty-dollar tab with a twenty-dollar tip charged to a credit card. If your merchant fees are 3%, you are paying the credit card company $3.00 ($2.40 on the food and beverage and 60 cents on the gratuity). So the question is, can you pay the server $19.40 rather than the full $20 to cover these expenses?
At the federal level, the answer is yes. The relevant section of the Fair Labor Standards Act, from the US Department of Labor’s Wage and Hour Division reads: “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….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.”
Keep in mind, however, that some municipalities have enacted regulations banning this practice, under pressure from workers and groups like ROC-United. For example, the recently passed Tip Protection Act, in Philadelphia, prohibits this practice citywide.
As always, check with your restaurant association and state department of labor to learn if local laws on this topic differ from the federal.