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Fat Guy

Restaurant Credit Card Fees

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I guess I don't see the problem with most of those examples of tip splitting. If a sommelier is out on the floor pouring wine and is paid by the hour, why shouldn't he or she be in the tip pool?

And who is supposed to pay the credit card fee? It's certainly generous if a restaurant chooses to pay it, but that shouldn't be a requirement. If a customer leaves a $100 tip and the credit card company charges $3 to process it, it's entirely reasonable for the servers to get $97.

As a legal matter, you can't share tips with the kitchen, but as an ethical matter I would have absolutely no problem with it. By using a service charge instead of gratuities, Per Se is able to include BOH staff in the pool.


Steven A. Shaw aka "Fat Guy"
Co-founder, Society for Culinary Arts & Letters, sshaw@egstaff.org
Proud signatory to the eG Ethics code
Director, New Media Studies, International Culinary Center (take my food-blogging course)

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I guess I don't see the problem with most of those examples of tip splitting. If a sommelier is out on the floor pouring wine and is paid by the hour, why shouldn't he or she be in the tip pool?

And who is supposed to pay the credit card fee? It's certainly generous if a restaurant chooses to pay it, but that shouldn't be a requirement. If a customer leaves a $100 tip and the credit card company charges $3 to process it, it's entirely reasonable for the servers to get $97.

As a legal matter, you can't share tips with the kitchen, but as an ethical matter I would have absolutely no problem with it. By using a service charge instead of gratuities, Per Se is able to include BOH staff in the pool.

I totally disagree about the credit card processing fee. The restaurant has chosen to accept credit card as a service to its customers, but also because they know they will make more money by doing so. If they don't want to pay the credit card fees, they can choose not to accept them, but they will have to accept the loss of sales from that decision. In retail you can't pass the cost of the processing fee on to your customers or employees, so why should you be able to do it in food service?

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If a restaurant chooses not to accept credit cards, and loses sales as a result, the servers lose tip income. They benefit from the credit card arrangement in lock step with the restaurant. Though credit card tips provide fewer opportunities for tax evasion.


Steven A. Shaw aka "Fat Guy"
Co-founder, Society for Culinary Arts & Letters, sshaw@egstaff.org
Proud signatory to the eG Ethics code
Director, New Media Studies, International Culinary Center (take my food-blogging course)

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I totally disagree about the credit card processing fee. The restaurant has chosen to accept credit card as a service to its customers, but also because they know they will make more money by doing so. If they don't want to pay the credit card fees, they can choose not to accept them, but they will have to accept the loss of sales from that decision. In retail you can't pass the cost of the processing fee on to your customers or employees, so why should you be able to do it in food service?

The reality is, that cost already has been passed on to consumers. It's just that, because nearly all restaurants accept credit cards, you can't easily see the difference. But that 3% has to be paid for somehow. With most customers nowadays paying credit, the cost is just buried in the general cost of running a business. But you are, in effect, the one paying it.

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Managers and sous chefs are generally salaried employees and in my humble opinion, have NO RIGHT to a cut of any tips. I love the pooling system, but keep in mind that in a lot of restaurants, that tip pool also goes to bussers, bartenders and the runners...so a single waiter will end up with significantly less than what he himself made that night.

At my last job, a manager who had been promoted from a waiter took a full cut of the tips one night when we were short staffed. He did work a full station, but I was furious. He's a manager, you do what you can to make sure the place runs well. And he's paid the same for his shift no matter what's going on.

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As an insert, I think that managers and sous chef should not get included in the tip pool. But in consideration,if a manager works a station as a waiter and completes the side work, and aids in a maintenance of the restaurant, he should be able to par take in the tip pool for that night, or shift. It would behoove him or her to divide the tip with the rest of the staff, or take the tips for a night out with the staff. Now I do not know how legal that is or not.

My self, I like the system in Europe where many of the restaurants the cooks share part of the tip pool, I am guessing that is similar to a service charge that is applied at Per Se. I think that makes everyone a little more invested in the restaurant.

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If a restaurant chooses not to accept credit cards, and loses sales as a result, the servers lose tip income.[...]

I don't think that's the point, Fat Guy. Management has the right not to accept credit cards. Servers have no such right. Therefore, it is manifestly unfair to penalize them for serving customers who pay with credit cards. And considering how low their pay is in the first place, it doesn't seem fair to further lower their hourly rates globally in order to absorb the credit-card-related costs that management decided to incur.


Michael aka "Pan

 

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If a restaurant chooses not to accept credit cards, and loses sales as a result, the servers lose tip income.[...]

I don't think that's the point, Fat Guy. Management has the right not to accept credit cards. Servers have no such right. Therefore, it is manifestly unfair to penalize them for serving customers who pay with credit cards. And considering how low their pay is in the first place, it doesn't seem fair to further lower their hourly rates globally in order to absorb the credit-card-related costs that management decided to incur.

A good friend of mine is 'Bigfoot" from the book "Kitchen Confidential". I spoke with him about this many years ago. He said that he has his waitstaff pay the credit card fees, and that it is absolutley legal. He is a self proclaimed labor law guru. This was about 8 years ago.

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What's meant by "pay the credit card fees"?

Are staff being asked to eat their proportional chunk of the CC fees, e.g. $85 check +$15 tip= $100 check-- 3% CC fee= $3. Tip was 17.6% of check, so proportionately tip should be ($15 -($3 *.176) =$14.47. OR

Are staff being stuck with eating the whole cost of the card fees, so that on the same check, tip = $12?


Christopher D. Holst aka "cdh"

Learn to brew beer with my eGCI course

Chris Holst, Attorney-at-Lunch

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What's meant by "pay the credit card fees"? 

Are staff being asked to eat their proportional chunk of the CC fees, e.g. $85 check +$15 tip= $100 check--  3% CC fee= $3.  Tip was 17.6% of check, so proportionately tip should be ($15 -($3 *.176) =$14.47.  OR

Are staff being stuck with eating the whole cost of the card fees, so that on the same check, tip = $12?

From what I understand, the waitstaff are required to pay the credit card fees on tips only. So, in your case, it would be 3% of $15.

If you look at it from an owners point of view....If your restaurant does, say, 5 million a year, thats 150 thousand dollars.

Most restaurants dont bother making their waitstaff pay this, but considering the small profit margins that restaurants already operate under, it would be wize to start doing so (IMO).

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How does that play with the IRS assumptions? Are staff taxed on $15 or on $14.47? If the IRS just adds up the Gratuity lines on the receipts and doesn't assume that the CC fees are deducted, then staff would be taxed on more than they make. Could that happen, or does the accounting take it into consideration?


Christopher D. Holst aka "cdh"

Learn to brew beer with my eGCI course

Chris Holst, Attorney-at-Lunch

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If you look at it from an owners point of view....If your restaurant does, say, 5 million a year, thats 150 thousand dollars.

Most restaurants dont bother making their waitstaff pay this, but considering the small profit margins that restaurants already operate under, it would be wize to start doing so (IMO).

How's that math work?

$5M gross

18% of gross is a reasonable estimated gratuity = $900,000

3% of $900,000 is $27,000

$150K is the total credit card fees on everything.


Edited by cdh (log)

Christopher D. Holst aka "cdh"

Learn to brew beer with my eGCI course

Chris Holst, Attorney-at-Lunch

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If you look at it from an owners point of view....If your restaurant does, say, 5 million a year, thats 150 thousand dollars.

Most restaurants dont bother making their waitstaff pay this, but considering the small profit margins that restaurants already operate under, it would be wize to start doing so (IMO).

How's that math work?

$5M gross

18% of gross is a reasonable estimated gratuity = $900,000

3% of $900,000 is $27,000

$150K is the total credit card fees on everything.

Your right, my bad.....Then maybe he WAS having the waitstaff pay the total credit card fees. I wonder if that is legal. Where would I find that out? I guess I would have to look into NY state labor law.

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I don't think that it is unreasonable to have the people benefiting from the tips paying the credit card fee after all that is money the restaurant doesn't see. Why should the restaurant pick it up? On the other hand, there is no way that those collecting tip income should be paying any part of the credit card fees beyond what they themselves are collecting.


John Sconzo, M.D. aka "docsconz"

"Remember that a very good sardine is always preferable to a not that good lobster."

- Ferran Adria on eGullet 12/16/2004.

Docsconz - Musings on Food and Life

Slow Food Saratoga Region - Co-Founder

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I totally disagree about the credit card processing fee. The restaurant has chosen to accept credit card as a service to its customers, but also because they know they will make more money by doing so. If they don't want to pay the credit card fees, they can choose not to accept them, but they will have to accept the loss of sales from that decision. In retail you can't pass the cost of the processing fee on to your customers or employees, so why should you be able to do it in food service?

The reality is, that cost already has been passed on to consumers. It's just that, because nearly all restaurants accept credit cards, you can't easily see the difference. But that 3% has to be paid for somehow. With most customers nowadays paying credit, the cost is just buried in the general cost of running a business. But you are, in effect, the one paying it.

If a restaurant chooses not to accept credit cards, and loses sales as a result, the servers lose tip income.[...]

I don't think that's the point, Fat Guy. Management has the right not to accept credit cards. Servers have no such right. Therefore, it is manifestly unfair to penalize them for serving customers who pay with credit cards. And considering how low their pay is in the first place, it doesn't seem fair to further lower their hourly rates globally in order to absorb the credit-card-related costs that management decided to incur.

If a restaurant had an issue with a credit card transaction they would have called me to look it up for them and diagnose the problem because I used to work for a credit card processing company. Adding on a tip is a costly business in terms of the processing. It seems fair to me that the server should pay their part of it.

The restaurant could chose to not allow tips to be added onto the credit card too. It's expensive and can be complicated sometimes.

One of my former employers in the food industry started making their servers pay the tax on their tips also. They found out as an employer that they were being charged tax on the gratuities so they passed that onto the servers.

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[...]it is manifestly unfair to penalize them for serving customers who pay with credit cards. And considering how low their pay is in the first place, it doesn't seem fair to further lower their hourly rates globally in order to absorb the credit-card-related costs that management decided to incur.

A good friend of mine is 'Bigfoot" from the book "Kitchen Confidential". I spoke with him about this many years ago. He said that he has his waitstaff pay the credit card fees, and that it is absolutley legal. He is a self proclaimed labor law guru. This was about 8 years ago.

Depending on what percentage of their tips he was collecting for this purpose, it might be legal and still manifestly unfair. I have no knowledge of what types of actions in this situation are legal under labor law; however, in any case, I'm commenting not on legal issues but on questions of fairness.

I've noticed that other types of establishments, such as gas stations, charge less to people who pay cash. Why is it that in a restaurant, it would be fair to charge an employee instead of a customer for a fee that is solely the result of the choice of mode of payment by the customer and the management's agreement to accept that mode of payment?


Edited by Pan (log)

Michael aka "Pan

 

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[...]it is manifestly unfair to penalize them for serving customers who pay with credit cards. And considering how low their pay is in the first place, it doesn't seem fair to further lower their hourly rates globally in order to absorb the credit-card-related costs that management decided to incur.

A good friend of mine is 'Bigfoot" from the book "Kitchen Confidential". I spoke with him about this many years ago. He said that he has his waitstaff pay the credit card fees, and that it is absolutley legal. He is a self proclaimed labor law guru. This was about 8 years ago.

Depending on what percentage of their tips he was collecting for this purpose, it might be legal and still manifestly unfair. I have no knowledge of what types of actions in this situation are legal under labor law; however, in any case, I'm commenting not on legal issues but on questions of fairness.

I've noticed that other types of establishments, such as gas stations, charge less to people who pay cash. Why is it that in a restaurant, it would be fair to charge an employee instead of a customer for a fee that is solely the result of the choice of mode of payment by the customer and the management's agreement to accept that mode of payment?

As credit card use has become more popular and prevalent throughout society I think the number of businesses who charge a differential to those who choose to pay with a credit card has declined sharply because it is poor business for most of them. Because of their ease of use amongst other reasons, credit cards are here to stay. It is the rare business that can discriminate against them as people will simply take their business elsewhere. People also tend to spend a lot more when using credit cards, so why should businesses take the chance of alienating their customers, the majority of whom do pay this way? If people are spending more in restaurants than they might otherwise , the tip amounts increase as a result as well so the waitstaff are also likely to be significantly better off even if they have to pay the fees on their tips.


John Sconzo, M.D. aka "docsconz"

"Remember that a very good sardine is always preferable to a not that good lobster."

- Ferran Adria on eGullet 12/16/2004.

Docsconz - Musings on Food and Life

Slow Food Saratoga Region - Co-Founder

Twitter - @docsconz

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[...]it is manifestly unfair to penalize them for serving customers who pay with credit cards. And considering how low their pay is in the first place, it doesn't seem fair to further lower their hourly rates globally in order to absorb the credit-card-related costs that management decided to incur.

A good friend of mine is 'Bigfoot" from the book "Kitchen Confidential". I spoke with him about this many years ago. He said that he has his waitstaff pay the credit card fees, and that it is absolutley legal. He is a self proclaimed labor law guru. This was about 8 years ago.

Depending on what percentage of their tips he was collecting for this purpose, it might be legal and still manifestly unfair. I have no knowledge of what types of actions in this situation are legal under labor law; however, in any case, I'm commenting not on legal issues but on questions of fairness.

I've noticed that other types of establishments, such as gas stations, charge less to people who pay cash. Why is it that in a restaurant, it would be fair to charge an employee instead of a customer for a fee that is solely the result of the choice of mode of payment by the customer and the management's agreement to accept that mode of payment?

Again, the restaurant's setup to allow tips to be taken over their credit card processing equipment is in itself a benefit to the server and to the customer and to itself. It's not a given nor a penalty it's a benefit to the server. The establishment has to pay dearly for this process. 3% is often the benchmark quote for processing fees, but's it's much much much more overall. It depends on the business' credit worthiness etc. If their salesman was a crook or not. How long they have been in business. What they signed when they got thier equipment. The fine print is a joke a true laugh fest.

Each merchant is put on a rack and squeezed and squeezed and squeezed tighter and tighter for a jillion fees. Sometimes the paper products they have to buy are priced so high it's beyond stupid. Sometimes they are forced to upgrade their equipment for another jillion dollars. Or they have to endlessly rent the box for big bucks a month. There's a whole lot more to it.

I had one merchant who was here in Memphis. The shipping on his one box of receipt paper was embarassingly high to go from the warehouse in Memphis to a Memphis address. It was all hog-tied to his contract with the processors. One of the upgrades we bequeathed to a business was free shipping on paper goods or free paper. Sometimes they would sign a contract for free paper but pay though the ass for shipping. It was lots of fun explaining all this.

It is fair to have the server pay for the part that specifically processes thier tip.


Edited by K8memphis (log)

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One of my former employers in the food industry started making their servers pay the tax on their tips also. They found out as an employer that they were being charged tax on the gratuities so they passed that onto the servers.

If the employer's accounting system was recording his "processing"of the tips for his employees as a credit to his own income, then there should have been an offset debit expense in his books when he cashed them out, so I don't see a net income differential there. (Seems to me tips owed are really liabilities, but perhaps it's a function of the POS system in place.) If it was a result of recording a previously underrecorded category of employees income, that may have had an impact on his employers' taxes such as UI and WC. I don't think he could pass that cost on to the employees, though.

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Moderator's Note:

This topic has been split from a discussion based on allegations of unfair labor practices at the restaurant Telepan in NYC as the discussion has relevance far beyond that specific discussion.


John Sconzo, M.D. aka "docsconz"

"Remember that a very good sardine is always preferable to a not that good lobster."

- Ferran Adria on eGullet 12/16/2004.

Docsconz - Musings on Food and Life

Slow Food Saratoga Region - Co-Founder

Twitter - @docsconz

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As a customer, I hate the idea of my server getting less money specifically because I decided to use a credit card. If I knew this was happening I would make a point of adding to the tip, but the server wouldn't know why I was doing that and would probably still feel s/he was losing money. I could just pay with cash or a check but I dislike both those options A LOT. :angry:

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As a customer, I hate the idea of my server getting less money specifically because I decided to use a credit card. If I knew this was happening I would make a point of adding to the tip, but the server wouldn't know why I was doing that and would probably still feel s/he was losing money. I could just pay with cash or a check but I dislike both those options A LOT.  :angry:

I hate carrying cash and if I have to pay with cash I generally buy significantly less than I would with a credit card. Because I am spending more, I leave a larger tip so I have no compunctions at all about it.


John Sconzo, M.D. aka "docsconz"

"Remember that a very good sardine is always preferable to a not that good lobster."

- Ferran Adria on eGullet 12/16/2004.

Docsconz - Musings on Food and Life

Slow Food Saratoga Region - Co-Founder

Twitter - @docsconz

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I think I spend about the same with credit as I would with cash, at least in restaurants. I know I tip way too well to feel bad about anything; I just don't like the feeling that a cut's being taken out. I feel it adds to the sense of nickel and diming that often comes with service jobs. Just an icky feeling I get.

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In some cases credit card tips are put on a servers paycheck, so they have to wait for them in addition to paying the processing fees. The obvious answer to not punishing the service staff is to pay with a credit card and always tip in cash. Servers and bartenders will love you all the more since they get immediate gratification that they'll see every penny of. They'll remember you fondly, and take even better care of you next time, I assure you. :smile:


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