Credit Card Fees on the Tip: Who Pays?

Did you know that servers cover the tip’s fees on credit cards?

According to the federal fair labor standards, restaurant owners can (and they do) deduct the tip-related portion of their credit card processing fees from the tips given to servers. It’s a small amount from each tip (typically around 2%, and can go as high as 4%), but it adds up.

Take a restaurant chain like Olive Garden. The average location brings in nearly $5 million in revenue and there are 750 of them. Figuring tips as 15% of sales and about three-quarters of them going on credit cards, the fees collected on tips would be in the neighborhood of $14,000 for each restaurant and more than $10 million for the entire chain.

For a full-time waiter, the fee give-back adds up to an amount approaching $1,000 annually. That’s a lot of lost income to a predominantly minimum wage workforce, and let’s not forget that the federal minimum wage for tipped workers is a staggeringly stingy $2.13 an hour.

This is not meant to be an indictment of restaurant owners. They are simply passing the fees along to the credit card companies, and themselves feel the squeeze from credit card fees cutting into their slim margins. Still, the practice is controversial. Many in the industry view the credit card fees as any other cost of doing business, like the electric bill or linen rental, and believe that like those costs, should be borne by the owner. To date, the labor departments in 15 states have banned the practice.

According to the National Restaurant Association, diners now use plastic 80% of the time at fine dining establishments, 60% of the time at casual restaurants, and even 25% of the time for fast food. That tip you thought was 15%— it’s not.

 

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