When can employers deduct credit card fees from tips in Dallas-Fort Worth? Dallas overtime lawyer explains

Today’s society is moving increasingly towards becoming a paperless society. That includes the way we pay for goods and services. It is rare that people pay in cash, especially with the reward systems attached to credit cards. The convenience of throwing down plastic comes with a price, at least to the business owners. Credit card processors charge a fee for processing these transactions. These credit card fees may include per-transaction fees (sometimes called swipe fees) as well as monthly or annual fees.

Businesses add these fees back into the cost of goods and services to pass them back to consumers. When you eat at a restaurant and pay with a card, those processing fees charge to the restaurant. Now the restaurant may add an extra quarter to the cost of your meal to make up for the fee; but you also tipped, right? The portion of the tip on the bill also takes the swipe fee; so the employer must either eat the swipe fee on the tip or pass it to the tipped employee. Many restaurants pass these costs on to their tipped employees just like they do to their customers. Is this legal? Yes.

Restaurants can pass credit card fees on to tipped employees

Under the Fair Labor Standards Act and Texas Payday Law, tipped employees are generally entitled to receive the entirety of the tips received from their customers with a very limited set of exceptions. One of those exceptions includes a lawful tip pool. Another exception recognized by the FLSA and Texas Payday Law includes deductions for credit card fees. The Department of Labor regulations permit restaurants to deduct credit card fees from tips provided by customers by credit card. The federal courts, interpreting the regulations and Fair Labor Standards Act, have affirmed the deductions.

What is interesting, perhaps disappointing, is that the courts give restaurants some flexibility in the percentage withheld from tips to pay for credit card fees. Many restaurants hold a flat percentage to cover fees and the courts have approved that policy in many cases where the percentage did not closely track the percentage charged by the credit card processor as a swipe fee.

One can argue that this makes sense because the employers often pay a monthly or annual fee on top of the swipe fee for credit card processing and the tip portion of the bill relies on payment of that periodic charge to be paid by the employer so perhaps a portion of that periodic charge ought to by shouldered by the tipped employee.

On the other hand, the periodic charge is part of the restaurant doing business by credit card and the restaurant would pay that fee regardless of whether the tips were left on the credit card or by cash so the tipped employees should not be responsible for shouldering the cost of doing business.

There are some limitations to the permitted deduction:

  • The deduction cannot reduce the employee’s wages below minimum wage;
  • The employee must receive the credit card tips, less the deduction, by the regular pay day even if the credit card processor has not processed the payment;
  • The employer must track the deductions as part of its tip recordkeeping process.

There is conflict between some courts and the Department of Labor whether several tip regulations, such as this one, apply in the rare exception where a server receives the full minimum wage ($7.25) or more but still receives tips. The Department of Labor contends tips belong to the employee regardless of whether the employer elects the tip credit, reducing minimum wage from $7.25 to $2.13. The Ninth Circuit Court of Appeals interpreted the Fair Labor Standards Act to say otherwise. That conflict remains unresolved for Texas; but if your employer does not take the tip credit you may see some different rules apply to your tips.

Photo courtesy of freedigitalphotos.net

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