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Who pays processing fees on tips paid by credit cards?

On Behalf of | Aug 17, 2022 | Wage & Hour Litigation

When a customer leaves cash on the table as a tip, there is no processing fee and the worker can simply collect their tip. Generally speaking, only the person who was actually serving that table is allowed to take the tip. But there are cases where the worker may be included in a tip “pool,” in which case the tip is split between eligible workers 

But many people pay for everything on credit cards, and leaving tips on a credit card is more prevalent than ever. As you likely know, businesses have to pay a processing fee any time they run a credit card.

In order to avoid the fees on credit card tips, some employers will deduct that fee from the money that eventually goes to the employee. After all, the employer has to pay these tips out, since the employee can’t collect them directly, as they would with cash. Is this process of deducting fees legal?

The company must cover the processing fees

This is actually illegal, and your employer has no right to do this. Under California Labor Code Section 351, tips are the property of the employee. Section 351 provides:

No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company. Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment.

The business itself has to cover the processing fees, not the employee who earned the tips. Deductions cannot be made and the employee needs to be paid the full amount that they are due. This means the entire amount of the tip (unless they are in a tip pool that is divided among other tipped waitstaff). Moreover, employers are not allowed to be included in tip pools. Simply put, employers are not permitted to take any portion of the tips given to tipped employees.

Workers who feel that their rights may have been violated should take the time to consider their legal options. Wage theft is a serious business, which can and should be challenged