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How should we handle tip calculations that factor out credit card fees?

by on
in Compensation and Benefits,Employment Law,Human Resources

Q. Our employees receive tips, and we take advantage of the tip credit toward the minimum wage. In the past, we have paid employees the full tip amount on credit card charges, even though we have to pay a percentage fee to the credit card company. It doesn’t seem fair that we should have to pay money that we don’t really receive. However, the rates vary for each credit card, so trying to determine how much we should withhold from each charge would be complicated. How may we resolve this fairly and legally?

A. At least one court has approved a policy under which an employer deducts a standard amount from all charges, as long as the standard is calculated in a manner that in the aggregate the employer does not receive more than it is entitled to receive.

Thus, on some charges, the standard deduction might be more than the actual charge of that particular credit card company, but on others the standardized charge might be less.

The key factor is that the standardized charge truly reflects the cost to the employer, and the employer cannot receive more than it is entitled to in the aggregate.

Wage-and-hour collective actions involving allegedly improper tip pools are one of the hottest types of employment law litigation right now. It’s important to ensure that your tip pool is in compliance before making any change, particularly one that employees may perceive negatively.

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