Tuesday, January 2, 2024

Discussing a couple of pay deductions for service-industry employees

Consider the following two policies, which restaurants and bars have implemented to save a few nickels against their tight margins:  

“Effective Jan. 1, we will begin implementing a tip refund for credit card processing fees for all gratuities left on a customer’s credit card; 2.5% will be deducted from your final check-out for each such gratuity paid.” 


“The full value of the check from which a patron flees the facility (‘dines and dashes’) will be deducted from the server’s paycheck.”  

Each of these policies is 100% legal under federal wage and hour laws. (Check your state laws, however, which may differ.) 

According to the Department of Labor, 

"When tips are charged on customers’ credit cards and the employer can show that it pays the credit card company a percentage on such sales as a fee for payment using a credit card, the employer may pay the employee the tip, less that percentage.... However, the employer cannot reduce the amount of tips paid to the employee by any amount greater than the transactional fee charged by the credit card company, regardless of whether or not it takes a tip credit.” 

Also according to the Department of Labor: 

“Deductions made from wages for such items as cash or merchandise shortages … are not legal to the extent that they reduce the wages of employees below the minimum rate required by the FLSA or reduce the amount of overtime pay due under the FLSA.” 

Thus, conversely, such a deduction is legal provided that it does not impact the employer’s minimum wage and overtime obligations. 

In both instances, I’d get employees’ written consent to establish that the employee authorized the deduction. 

Just because something is legal, however, doesn’t mean that it’s a wise employment practice. 

Accepting credit cards as a form of payment is the business’s decision, not an employee’s, and thus it strikes me as fundamentally unfair to pass those processing fees on to the employees. If your margins are so slim that you can’t afford a two or three percent credit-card fee, either raise your prices by that amount, pass the fee to the customer instead of your employees, or at least let you customer know that you’re take the fees from your employees so that they can consider covering the cost with a higher gratuity. 

Similarly, customer theft isn’t an employee’s responsibility, it’s the responsibility of the business to implement sufficient controls to stop it from happening. Why punish an employee for something out of their control? 

I would not advise that a business adopt either of these pay deductions. They may not qualify as “wage theft,” but they are nonetheless a terrible idea.