Can we deduct any money for credit card fees on tips employees receive?
– Peter Gianakos, Mr. G’s Restaurant, New London, Connecticut
In most states, including yours, employers may indeed pass credit card fees on tips to the employees provided that that the employees are only paying the fees on the portion of the bill designated as the gratuity. Further, in tip credit states, the deduction may not take the hourly wage below full minimum wage.
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 [Fair Labor Standards Act]. 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.
That said, many states including Alaska, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon and Washington as well as some municipalities such as the City of Philadelphia do not allow this practice. One thing to keep in mind is while the practice of recovering the credit card fees from tips may be legal, it may not be the best employee retention strategy—is this a perk you can offer to keep talent? Or is it a better strategy to control that cost?
As always, consult your attorney and state restaurant association to make sure you are compliant with the latest regulations.