Tuesday, April 9, 2024
Dear Erica,
I work at a brewery that does private events.
The brewery has recently decided that all events will be paid at $25/hr.
We are permitted to accept cash tips, but if a customer pays on a card and adds a tip, we do not receive that money.
Is it legal for the house to keep tips that are written on credit card transactions?
– No CC Tips for Events
Dear No CC Tips for Events,
Wow – just wow. If you don’t remember anything else, please remember this one rule: employers, including managers and supervisors, may not “keep” tips.
Federal law, specifically the Fair Labor Standards Act (FLSA), prohibits employers from keeping any portion of employees’ tips for any purpose, whether directly or through a tip pool, and even in the case where there is a tip credit.
Under my favorite federal law, the FLSA, there is some allowance for the employer when the credit card company charges a percentage as a fee for payment for using the credit card.
When tips are charged on customers’ credit cards and the employer can demonstrate that it pays the credit card company a percentage as payment for using a credit card, the employer may deduct the percentage from the tip it pays the employee.
For example, where a major credit card company charges an employer 5 percent on all sales charged to its credit service, the employer may pay the tipped employee 95 percent of the tips without violating the FLSA.
However, the employer cannot reduce the amount of tips paid to the employee by any amount greater than the transactional fee paid to the credit card company. If it did, it would likely be a violation of the FLSA.
Note: Some states may have more protective laws regarding tips charged to credit cards which do not allow the employer to deduct credit card fees from employees’ tips.
