The Green Sheet Online Edition
October 08, 2007 • Issue 07:10:01
Who pays interchange on tips?
I recently took a second job as a server at a noncorporate restaurant in Woodbury, Minn. We (as in the wait staff/tipped employees) have just been informed that instead of the restaurant taking responsibility for the whole portion of the interchange fees charged by credit card companies, we will have to pay for the portion of the fee that is the tip.
An example would be if Visa charges 2.5%, and we were tipped $10 on said Visa card, we would pay the 25 cents. This would now equal a tip of $9.75 instead of the original $10. Do you know if this is legal? Or could you suggest someone I could ask about this matter, as it is a highly specific question.
We referred your question to Attorney Adam Atlas, a member of our advisory board and frequent contributor to our publication. He said, "If the merchant were charging customers more to pay by credit card, then I believe the merchant would be operating in contravention of the Visa U.S.A. and MasterCard Worldwide rules. However, this is not the case.
"In this case, the merchant is making a decision as to how to allocate its costs for processing its transactions. Obviously, the merchant has decided to have its employees pay for part of the cost of acquiring funds through its merchant account. As far as the Visa and MasterCard rules, I do not believe that the merchant is in violation.
"Where there is a possibility of a violation is in the terms and conditions of employment of the server. The server should examine her employment agreement (if she has one) to see if this tax on tips is spelled out in the agreement. Another way to look at this is to interpret the tip as a direct payment from the customer to the server. For the merchant to deduct some of that payment is, in a sense, interfering in the agreement between the server and the tipping customer.
"From that perspective, the merchant and server should consider whether they are under an obligation to inform customers that something less than the full amount of the tip will be paid to the server. I believe this is more a matter of local-state labor law (in which I am no expert), than electronic payments law.
My recommendation to the server is to inquire with the local state labor standards bureau to see if there is any local state law or policy on title in tips paid to servers. Needless to say, morally, the practice is questionable at best."
We hope you find this perspective helpful.
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On page 52 in the print version of "Discover dumps RAP, easi for new program," Discover Financial Services LLC Vice President of Acceptance and Client Relations Gerry Wagner's name is misspelled. It was published Sept. 10, 2007, issue 07:09:01. The name is spelled correctly elsewhere in the article. The Green Sheet regrets the error.
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