Many employers in the restaurant industry have decided to pass on every cost they can to their employees. From making employees buy their uniforms, to forcing them to work unpaid “training” days, and even passing on administrative costs one might assume would be covered by the employer. One administrative cost employers are passing on is the cost of credit card processing. Typically credit cards companies charge businesses a percentage of the amount spent on the credit card at the business as a processing fee. Restaurants frequently take a percentage of their employees’ tips to pay for credit card processing of all the tips customers pay for with a card.
Under section 203(m) of the Fair Labor Standards Act, employees may only claim the tip credit if all tips received by a tipped employee are retained by that employee. This means if a restaurant owner takes a portion of the employees tips for an unlawful reason they lose the right to pay their employees the (much) lower tipped employee minimum wage with the tips making up the difference between what the employer pays as an hourly wage and the federal minimum wage.
Courts have allowed employers to deduct the cost of credit card transaction fees from their employees’ tips but still retain the tip credit to use towards the minimum wage. But that doesn’t mean an employer can deduct any amount they want from their employees’ credit card tips. In a case in Texas a restaurant owner retained flat 3.25% of all credit card tips to offset both credit card issuer fees and other costs which they contend they incurred in collecting and distributing the tips. The restaurant argued they were subject to extra costs and administrative expenses beyond just processing fess because the restaurant converted the tips to cash to “tip out” on a daily basis which they claim the employees had specifically requested.
The court said a business can not make deductions from an employee’s tips AND keep the benefit of tip credit when they deduct an amount from tips if the deduction is for something the employer is not required to do. The court found the costs above the credit card processing fee were not “direct and unavoidable” such as the credit card company fees, but instead were “indirect and discretionary”. The court said paying everyone in cash every day was a business decision and the employer could have chosen to fold the employees tips into their biweekly paychecks rather than tipping out the employees everyday. The cost of making a business decision should not be borne by the employees.
If you are a tipped employee who is paid less than $7.25 an hour with tips making up the difference between what you are paid by your employer and the minimum wage then make sure you know if, and how much, your employer is taking from your tips. If it is anything more than one or two percent per credit card transaction then the employer may be violating the law.
If you are working in the Atlanta Metro area and you have a question about the way your employer treats your tips call or email Atlanta employment lawyer Benjamin Kandy.