Adding a tip onto the bill is a routine occurrence for many folks when charging a meal on their credit card. But what many don’t know is that there some restaurants charge their servers a fee every time their patrons tip on a credit card, rather than in cash.
Credit Card Processing Fees
Every time a merchant processes a credit card, the credit card company assesses a processing fee. This is to pay for the use of their processing equipment and for the privilege of accepting their credit card. It is generally considered a cost of doing business. When a server processes your credit card, the processing fee is assessed, and the restaurant is responsible for paying it. Some restaurants are now passing on a portion of the processing fees to their servers for every credit transaction with a tip. It may be a flat fee or a variable percentage, depending on the tip amount.
In general, it's not illegal in the United States for a restaurant to assess credit card processing fees against their servers. While there are some exceptions as determined by each state, restaurants are free to assess a processing fee for credit card tips against their servers as long as it doesn't reduce their hourly wage below minimum-wage limits for the state.
Some states, such as California, Colorado, Alaska, Montana, Oregon, and New Mexico, have statutes prohibiting the practice. Washington State has a disclosure statute. While restaurants are not prohibited from the practice, those participating in fee distribution are required to post a notification of such practices in full view of their customers.
Servers, many paid only $2.13 per hour without tips, rely on tips to bring their hourly wage up to a livable income. Servers are taxed 15 percent on their tips by the federal government. When tips are left on credit cards, they are 100-percent traceable and auditable by the Internal Revenue Service. Add to that another 1.5 to 3 percent for credit card processing fees and your server takes home $4.10 to $4.17 of your $5 tip. Tipping in cash allows the server to circumvent the processing charge.
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