Servers: Where are your Credit Card Tips?

 In Overtime Law, Wage Law

Servers are Lawfully Entitled to Credit Card Tips.

It is extremely common for customers to pay tips via their credit cards as part of the general payment process. This can create an opportunity for employers to engage in wage theft and to violate the labor rights of their tipped employees. These are the general rules for paying tips to waitstaff and other tipped workers:

  • Restaurants must pay servers all credit card tips no later than the next regular payday
  • Restaurants must pay servers all tips by the next payday even if the employer is still waiting for reimbursement from the credit card company
  • Restaurants may deduct the exact amount of the transaction fee charged by the credit card company from the actual amount of tips received by servers
  • Restaurants CANNOT deduct from the tips owed to servers the amount charged by the credit card company’s for the FULL bill paid or on tips servers do not ultimately receive
  • Restaurants CANNOT deduct anything else like their own “administration” or “processing” fees

As an example, assume the total bill was $100, including a $20 tip. Assume further that the credit card company charged a processing of 2% for a total of $2 charged for the whole transaction. The employer must pay the worker the tip at the next regularly scheduled payday and can ONLY deduct $0.40 (which is 2% of the $20 tip). Regrettably, this is one of the most common methods that shady employers use to steal tips from their workers. Some employers will tell workers that they can deduct the “processing fees” and then deduct the entire fee for the whole transaction. That is, in our example, the employer steals tips by deducting $2 instead of $0.40. This is unlawful and tipped workers can bring their employers to justice if this happens.

If you think your employer has been shorting you on your tips or has otherwise been violating your rights as an employee, you should call us here at Herrmann Law. We can offer legal advice and help vindicate your rights.

It is Illegal in Some States to Deduct Anything for Credit Card Processing Fees

A few states have more restrictive rules. For example, in California, it is illegal for employers to deduct processing fees from tips that are given to workers. See here (Q #3). Two other states — Maine and Massachusetts — also prohibit employers from deducting credit card company fees from worker’s tips.

Colorado also has more restrictive rules than the general rules listed above. In Colorado, the labor laws and regulations attempt to incentivize employers from deducting credit card company processing fees. In Colorado, if an employer chooses to deduct for credit card processing fees, then the employer CANNOT take advantage of the tip credit. See here. The tip credit allows an employer to use part of a worker’s tip to satisfy the employer’s obligation to pay minimum wage. The tip credit saves the employer a substantial amount of money on wages, far more than the employer saves by deducting the credit card processing fees. In other words, in Colorado, if an employer deducts the credit card processing fees from tips, then the employer cannot pay tipped employees at the subminimum wage rate.

Call the Employee Rights Attorneys at Herrmann Law Today

For more information, call the Employee Rights attorneys at Herrmann Law. If you think that your employer has violated your rights as an employee, call us. We are proven, experienced, employee-focused attorneys representing workers across the United States in all types of workplace disputes. Use our Online Contact page or call us at (817) 479-9229. We are more than just a law firm for employees – we are an employee’s fiercest advocate, equipping employees with the legal representation needed to achieve the best result possible.


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