What Do You Think: Should Restaurant Owners (Like, Say, Stephen Starr) Use Waiters’ Tips To Pay Some Of The Credit Card Fees?

You probably know that restaurants get hit with fees when you use a credit card. If your bill is $300, you leave a $60 tip (because you are a solid person), and pay with your Visa — their fee is around 2.5% — the restaurant is charged $9. What you might not realize is that some restaurants take a percentage out of a server’s tips to cover the fee assessed on those tips. In other words, the $60 you thought was going to your friendly waiter for a job well done has turned into $58.50. Well, not everyone is happy with this arrangement.

Yesterday, CBS 3 reported that Philadelphia Councilman-at-Large Jim Kenney intended to introduce a bill that would prohibit a restaurant (or spa or hair salon) from touching gratuities to pay for credit card fees. He told the reporter: “If I’m leaving an 18-20 percent tip, I expect that to go into the pocket of the person who waited on me, not three percent skimmed off the top to go to the owner of the restaurant.”

“The Councilman feels that it’s the choice of a restaurant to accept credit cards, and the cost of that choice is the credit card processing fee,” added a legislative aide in Kenney’s office today. “It’s unfair to the waitstaff to be penalized for the decision of the business.” Kenney’s office declined to name names but says the Councilman is aware of restaurants that take proportionate fees out of the gratuities as well as restaurants that make servers pay for the entire processing fee out of their tips. Everyone seems to agree that the latter practice is just plain wrong, if not illegal.

Stephen Starr, whose servers cover their portion of the credit card fees, directed me to his CFO, Bruce Koch. “The sharing is only fair,” insists Koch. “It puts the restaurant in exactly the same position it would be in if we were cash only. We’re not benefiting from this.” Another restaurateur, who follows Starr’s example but asked to remain nameless, says, “The people who don’t understand this simply don’t understand the math.”

Koch also remembers a study that the IRS conducted to help with audits. He says the study showed that people who pay with credit cards tend to tip two to two-and-a-half percent more than people who pay with cash. I have been unable to locate the study, though it sounds reasonable enough to me, at least based on my own experience. “We feel strongly that the servers are making some good money, and it’s even better because we accept credit cards,” explains Koch. “Some restaurants don’t accept credit cards, and I guarantee you that their servers don’t make out as well as ours do.”

As for the servers, I spoke with one this afternoon who works at a restaurant where he is required to cover his portion of the credit card fees. “It’s frustrating,” he admits. “I understand the necessity and the arrangement, but I feel like the general public doesn’t know that it’s happening. Then again, the percentage is minimal. It’s not going to hurt me in a direct route. But in the long run…”
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