Most state wage laws do not specifically address the issue of credit card processing fees. Thus, employers can deduct credit card fees from tips unless state law otherwise prohibits these deductions.
Wage theft is a significant issue for tipped employees, and it can occur in various forms that directly impact their earnings. Since tipped workers rely heavily on tips to meet minimum wage requirements, any illegal practices affecting their tips can lead to severe financial harm.
Federal Law on Whether or Not an Employer Can Deduct Credit Card Fees From Tips
The Fair Labor Standards Act (“FLSA”) states that if tips are paid via credit card, the employer can lawfully deduct the proportionate cost of the credit card processing fees from the employee’s tips. However, the deduction cannot reduce the employee’s earnings below the federal minimum wage or any applicable state or local minimum wage.
For example, if a credit card company charges a 3% fee for processing a transaction, the employer can deduct 3% from the tip amount that the employee is owed, but nothing more. The remainder of the tip must go to the employee.
State Specific Wage Law
Many states follow the federal FLSA standards for handling tips. Most states do not have laws that expressly prohibit employers from deducting credit card processing fees from tips as long as the employer complies with FLSA guidelines. This means that the employer:
- Can deduct credit card fees, but only the proportional amount (e.g., 3% of a 3% processing fee).
- Cannot deduct more than the actual processing fee amount.
- Cannot reduce the employee’s wage below minimum wage after the deduction.
Many states though have wage laws which prohibit wage deductions unless the employee agrees to the deductions in writing. Thus, employers cannot deduct credit card processing fees unless the employee actually agrees to the deduction in writing.
In addition, some states have wage laws which prohibit payroll deductions unless the deductions benefit the employee and not the employer. In these states, employees may have a strong argument that credit card processing and other like fee deductions are illegal. You should consult an employment lawyer if you have questions about wage deductions.
Important Considerations For Employers Who Deduct Credit Card Fees From Tips
Full Disclosure: Employers should clearly communicate any tip-related deductions, including credit card processing fees, to employees.
Fair Practice: Employers must ensure that deductions do not unfairly impact employee earnings, such as by taking out more than the actual processing fee.
Minimum Wage Compliance: Employers must make sure that any deductions do not drop the employee’s hourly rate below the state or federal minimum wage.
Common Wage Theft Issues for Tipped Workers
Tip Pooling Abuse
Employers may legally implement a tip pool to share tips among employees, such as servers and bussers. Under the FLSA and many state wage laws, only employees who regularly receive tips can participate in a tip pool. Managers or employers are prohibited from taking part in these pools.
Failure to Pay Minimum Wage
In many states, tipped employees are paid a base wage below the federal or state minimum wage (known as a tipped minimum wage), with the understanding that tips will make up the difference. However, the employer must make up the difference if tips do not bring the employee’s earnings up to at least the applicable minimum wage.
Employers often fail to monitor this and do not compensate employees correctly, resulting in employees earning less than minimum wage and violating the FLSA.
Failure to Pay Overtime
Employers may fail to pay tipped employees overtime when working 40 hours a week. Even though tipped workers receive a lower base wage, they are still entitled to overtime pay based on the full minimum wage.
Under the FLSA and many state wage laws, overtime pay must be 1.5 times the regular wage rate including tips (not the tipped wage) for all hours worked beyond 40 in a week.
What to Do If You Think Your Tips Are Being Unlawfully Reduced
If you believe your employer is deducting more than the allowable credit card fee or unlawfully reducing your tips, you can file a complaint with the U.S. Department of Labor.
You can also speak with an attorney specializing in employment law for advice on recovering lost wages. At Rowdy Meeks Legal Group LLC, we have the experience, resources, and track record to help you with your wage claim.
Getting the Help You Need from an Attorney
If you’re concerned about whether an employer can deduct credit card fees from tips, you should contact Rowdy Meeks Legal Group LLC today.