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States Allowing Credit Card Fee Deductions from Tips


jayandstacey
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One of the recent "ask Tom" columns in the Sunday Post Magazine noted that some states allow restaurants to deduct the credit card fee from the tip you've left...

Dislike. But maybe this is common (?)

First of all - is that permitted by the merchant agreement with Visa/MC/AmEtc? They generally shy away from any segration of the merchant fee in any way except to build it into the price of the product sold.

But let's say that's OK. Does anyone know what states allow this? And within those states, is the practice common? And the places that do this, how is it perceived by the staff that rely on those tips?

Of course, I always tip like a boss but taking 3% from my 15% (or 20%, or 25%, or beyond the point of fear) seems fair to no one but the owner.

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15 years ago, I worked for a now-defunct fine dining establishment in McLean that deducted the merchant fee from all serving staff's tips at the end of the night.

It was one of several miserly practices we resented. Another was that as a condition of my employment, I had to get on the phone with some state agency and answer questions that would allow the owner to claim me as "disadvantaged youth", and thereby obtain a tax break. I answered the questions truthfully, and since it turns out there is a wide definition of disadvantaged, I fit the bill. But other new hires who did not meet that standard were soon let go for a range of mysterious causes, they never lasted more than six weeks.

Sketchy practices like this abounded. But no one had a voice to protest. Each of us desperately needed the money, and droves of other experienced servers would be happy to step in if any of us were fired due to speaking out against management practices. Losing 3% at the end of the night was much better than losing all income and being back on the street in a frantic job search.

That is just one story from northern Virginia, and without any "was this legal" analysis. Like jayandstacey, I would welcome learning lots more in response to the questions above.

Counterpoint Epilogue: I wound up landing a hostess job at a national chain steakhouse, which lead to another server job, which lead to a lot more income and I was able to quit the job with the shady management practices. The national chain had policies a lot more generous than my previous employer. As one example, whenever anyone was seriously stiffed through no fault of their own, the management paid the server the cash required to bring the tip up to 20%. On a per-transaction basis, that policy may have been expensive. But such instances were rare, fraud detection was easy, and having the tipping safety net in place guaranteed motivated service for even the most difficult of parties. Merchant charges never came up as a topic during tip out, night and day from my previous gig.

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According to the Wiser Waitress, only the following states prohibit employers from deducting a percentage of a server’s credit card tips to offset card processing fees:

  • Alaska
  • California
  • Colorado
  • Montana
  • Nevada
  • Oregon
  • Washington
  • New Mexico and Idaho (only if the employee agrees and signs a written waiver)

Nolo also has an interesting page regarding what service employees need to know about tips.

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Wow - Ok - so the entire east coast could deduct the fees. I wonder if any actually do. And, I wonder what (if anything) is done with someone who pays via credit card and tips in cash - are the fees pulled from the cash?

NB: This has the potential to 'steam' me as much as the old Costco practice of backdating your annual membership - where if you were a member from January 1, 2011 to Dec 31, 2011...then didn't show up in 2012 until March 20th - you could renew your membership for 2012 on March 20th but that renewal of your "annual" membership got you January 1 to Dec 31 2012 again. The fact that you didn't show up for 11 weeks didn't matter, they neither pro-rated the membership or moved the dates foward. A class action suit finally ended the practice.

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15 years ago, I worked for a now-defunct fine dining establishment in McLean that deducted the merchant fee from all serving staff's tips at the end of the night.

And just to be sure I understand this: Was the deduction only of the fee of the tip iteself?

Example: $300 bill, $100 tip. Assuming a 3% merchant fee, that's $9 in fees for the meal, $3 for the tip portion, $12 total merchant fees on $400 total charged. Was $3 deducted from the tips? or $12?

The Sietsema article seemed to indicate that $12 can be deducted - thus the statement that a 18% tip really becomes a 15% tip once the (total) fee is deducted.

So...I'm either really surprised if the wait staff pays ALL the merchant fees....OR....I think the WaPo may have gotten it wrong.

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And just to be sure I understand this: Was the deduction only of the fee of the tip iteself?

Example: $300 bill, $100 tip. Assuming a 3% merchant fee, that's $9 in fees for the meal, $3 for the tip portion, $12 total merchant fees on $400 total charged. Was $3 deducted from the tips? or $12?

The Sietsema article seemed to indicate that $12 can be deducted - thus the statement that a 18% tip really becomes a 15% tip once the (total) fee is deducted.

So...I'm either really surprised if the wait staff pays ALL the merchant fees....OR....I think the WaPo may have gotten it wrong.

The deduction was from the tip amount. Per your example above, if my guests tipped me a total of $100 that night through their credit cards, I received as much as $97, as little as $95 if it was all AmEx or Discover (which apparently had higher merchant fees). A three to five percent reduction per shift does not sound like much, but when coupled with the bartender and busser tip out percentage fees, this added up quickly.

If the guest paid their meal with a credit card but tipped in cash, I kept all the cash, minus the aforementioned tip outs.

Which leads me to another point (and maybe to another thread). Write "cash" on the tip line whenever you tip cash on a credit card restaurant meal. Otherwise, a few nights later when receipts are reviewed and the specific circumstances are all but forgotten, a new server could get scrutinized for having received a $0 tip, when in fact they were tipped generously.

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I haven't had this happen to me, nor have I heard of it happening elsewhere in the city.

Doesn't mean that it doesn't happen - I'm sure it does somewhere if only because there's a ton of restaurants here - but so far as I can tell, it's by no means a widespread practice.

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Which leads me to another point (and maybe to another thread). Write "cash" on the tip line whenever you tip cash on a credit card restaurant meal. Otherwise, a few nights later when receipts are reviewed and the specific circumstances are all but forgotten, a new server could get scrutinized for having received a $0 tip, when in fact they were tipped generously.

I love this idea! I almost always tip in cash, but just write -0-. I'll write "cash" in the future. Thanks for the suggestion!

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Which leads me to another point (and maybe to another thread). Write "cash" on the tip line whenever you tip cash on a credit card restaurant meal. Otherwise, a few nights later when receipts are reviewed and the specific circumstances are all but forgotten, a new server could get scrutinized for having received a $0 tip, when in fact they were tipped generously.

It's also helpful as a server for if you're working with a less-than-honest support staff - we actually fired a busser for taking cash tips out of check presenters, and one of the reasons we knew to start looking for something was that there were plenty of charge receipts with "cash" written on the check line with seemingly no cash left behind.

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I haven't had this happen to me, nor have I heard of it happening elsewhere in the city.

Doesn't mean that it doesn't happen - I'm sure it does somewhere if only because there's a ton of restaurants here - but so far as I can tell, it's by no means a widespread practice.

I agree....

But it makes me wonder why Sietsema would print it. And print it as I'm (pretty sure) I saw it, which was to say that "an 18% tip could really be a 15% tip once the cc fees are deducted." - why bring this up at all?

It won't have the effect that I just go up 3% with every tip on the chance that the deduction will occur. It rather has the effect that I'll wonder - does the lukewarm service I just received result from the restaurant taking 10 to 20% of the server tips away to cover cc expenses?

I just don't get it - why a place might do this, or why Sietsema would mention it if the vast majority of places don't do it. More than that, I'd love to see some exposure and pressure on those places that DO, such that public opinion might get them to change their practice.

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I always write "cash" as well, but mostly because I was the victim of fraud -- someone put an extra digit between the number and the dollar sign in my tip line. Using words instead of numbers seems to address that tactic.

Similarly, my friend used to leave a tip on the Merchant Copy and then tear up the Customer Copy -- and leave the shredded Customer Copy on the table. Knowing that he had left any evidence to the contrary, the thief charged an extra hundred dollars to the tip line of his bill. This was over ten years ago, so there are probably new threats to credit card tip fraud.

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