Is It Legal for Employers to Deduct Credit Card Processing Fees from Tips? | Mann & Elias
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Is It Legal for Employers to Deduct Credit Card Processing Fees from Tips?


You work hard. Your job as a restaurant worker keeps you busy. You are constantly on your feet, dashing from one table to the next, doing your best to ensure that customers get what they ordered. Despite popular opinion, restaurant work is not easy. It takes energy, endurance, and diligence to do it well. And you want to do it well because that is the only way you will be tipped.

Tips form a large part of the take-home pay of most restaurant workers. You, like everyone else in the hospitality business, know that pleasing customers is the key to getting a good tip. And no matter how the customer decides to pay your tip, you should receive what they give you in full.

If you work in a California restaurant and your employer deducts money from tips given by credit card, then they are in violation of the law. If the restaurant continues this practice, then you might need to contact an employment attorney in Los Angeles.

The Issue with Tips by Credit Card

Restaurant owners have a legitimate issue with payments by credit card. Credit card processing fees eat into their profits. Some owners look to offset these expenses by deducting money from server tips that are paid by credit card. In most states this is legal. It is not legal in the state of California.

Even in the states in which it is legal to deduct money from tips paid by credit card, it must be done in accordance with certain rules. They are as follows:

  • Your employer cannot deduct the cost of processing the gratuity portion of the bill from your tip
  • Your employer cannot deduct the cost of processing the entire bill from your tip

This limits the employer’s options. According to the Fair Labor Standards Act, which is the federal law regulating this action, the employer can only deduct the processing percentage from the tip.

Restaurants Have Alternatives

While it is true that restaurant owners are under a great deal of pressure to keep the business solvent and prosperous, they cannot use this as an excuse to cheat and exploit workers. Some small business owners are naturally rapacious and believe that they are entitled to do anything to increase their profits. Do not allow yourself to be bullied and taken advantage of.

If your employer argues that credit card processing fees are too high and they need to deduct money from your tips, you can try to help them solve the problem by pointing out that they may be paying too much for credit card processing fees in the first place. Before taking money from your tips, the restaurant owner should shop around for a more cost-effective provider.

This should be a no-brainer; it should be the first thing that a restaurant owner does. If your employer refuses this suggestion or makes excuses for why they cannot switch or look for a more competitive credit card processing provider, you should be suspicious. They may enjoy some other financial advantage with the provider they work with. Such an advantage should not come at the expense of the tip money you have earned.

Further Actions to Take

If you have tried to reason with your employer about the law and your rights with regard to tips by credit card and they carry on with the deductions, you may want to direct them to the California laws that deal with the matter.

Do not be surprised if your employer does not know the law governing tips. Many owners have only a surface knowledge of law regarding wages and working conditions. They know enough to set wages, establish rules concerning rest and meal breaks, and adhere to overtime regulations. They may not believe that there is any such law that forbids them from deducting money from credit card tips. If you have pointed out the rules dealing with the matter and they continue to deduct money, then you will need to get into it legally. Your first step should be to contact a lawyer.

Protecting Your Rights

Going up against your boss can be frightening. You should not let that deter you. If the owner is taking money from your tips, the law is on your side. In fact, you are unlikely to be the only one who is being treated unjustly. Your colleagues are no doubt having their tip money reduced because of this practice.

The Los Angeles lawyer for unlawful practices in the workplace you hired may have started the engagement with your case. However, it may turn out that your colleagues are taking legal action as well. If there is strength in numbers, it may be easier for the tipped employees to speak out and give evidence.

The one thing you should not do is try to bend the will of your employer on your own. Nor should you attempt to settle with them without legal advice. Once the dispute has entered the legal realm, it is best to leave matters entirely in the hands of your attorney. They should be left to handle all communication and negotiation with the restaurant owner on this matter.

It is illegal in the state of California for an employee to be terminated for raising concerns about worker rights. If your employer does fire or demote you, they will only compound their legal trouble. If you are having problems with your employer, then you should contact a lawyer to help you get compensation and justice. You will be able to file a lawsuit for wrongful termination in addition to the one you filed for the illegal deduction of money from your tips. This can lead to your getting damages in the form of back pay and emotional distress.


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