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Adding tip to charge may cost server 2-3%?


I just read i think in Real Simple, that at some restaurants, if you add the tip to the bill, the server is then deducted the amount of service charge the retaurants pays to use the credit card service.

I have never even thought of it. I now will start asking before doing so. So those of you that do or have worked in the industry, is that a common practice. Is it only in large cities, or is it pretty common across the board?

  1. OH!!! That would be major unfair management practice! yeah I now would ask before, and if I found it so; really consider going back. NO WAY should management place their service fees on the backs of the servers.

    1 Reply
    1. re: Quine

      My son manages restaurants and told me this a while back. We tip cash now.

    2. Some places also don't give the tip money to the wait staff until the restaurant actually has the funds from the CC company. That and the potential service fee have made me try to never tip on the CC.

      1. It's illegal, but it's done.

        1. Yep, this happens all over. I always try to tip in cash on a CC.

          1. Another reason to tip in cash.....the server HAS to claim any tips on credit card. Those in cash...they can pretend don't exist. Legal...no, but I personally don't care. I always tip cash.

            15 Replies
            1. re: rizzo0904

              I usually tip in cash but not so the server can cheat on his/her taxes more easily. I do it because I think it's nicer for them to have the money right away. I declare everything whether I can cheat or not so I give servers the benefit of the doubt, too, that most are honest.

              1. re: rizzo0904

                You and I think alike.
                I always tip in cash and I could care less if the server claims it or not.
                It's none of my business what he/she does with it but I will help in any way I can so they don't HAVE to claim it.

                1. re: latindancer

                  Kind of like standing in the way of the server so someone who looks like he wants to steal the tip can do so?

                  1. re: chowser

                    Is there a meaning behind your response?

                    1. re: chowser

                      BTW I'm not a server's judge and jury.
                      I tip cash like most people I know who know that a server MUST claim credit card tips.
                      I tip all services in cash.... the people in the state I live in are taxed highly...maybe if I lived in another state I'd think differently, doubtful though.
                      Regardless, I have no idea what your attempted analogy means.

                      1. re: latindancer

                        I grew up in the "Biz" We did not have CC machines; we were cash. But I saw cheap tips, I saw wives take tip money that the "man of the house" left.. I saw great tips. It's a curve. You have bad tippers ( or tip stealers) who somehow have to *justify* a bad tip and nice folks who leave a tip that makes you awestruck for how nice it is.
                        I've worked with awful servers ( heck, I hired some!):who did everything to hustle or steal a buck.
                        99% of those I have worked with or hired (therefore worked with) were such honest decent hardworking people That to read that people here think they are Tax cheaps is so nasty!
                        Now I DO know that some posters here are amazing chows who tip well. But to assume that cash tips are cheated on is biased.

                        I worked VERY hard to bring down a management that OVER reported tips that they charged on the CC.. Not only did the server not get their tips in a timely fashion, when tax time came, they found out management over claimed their tips!!!

                        Why would management over report? Minimum wage. Servers are paid less than that since the management must record tips and pay the difference between what the server earned with tips made and that must average out to minimum wage per hour. So if they over report, they don't pay.

                        And you think servers cheat on reported income??? Get real...how much do you think a restaurant earns over reporting?

                        1. re: Quine

                          It would be a pathetic restaurant and/or very untalented servers to average less than minimum wage with their tips and hourly wage (usually half of minimum wage) combined. That formula refers to the average for a week, not a particular shift. In Maine, a snowy day might result in that kind of situation but it would be hard to imagine it otherwise.

                          1. re: Quine

                            I don't **think** servers cheat on reported income, I **know** they do. When I started out in the business, I asked my fellow servers how they kept track of cash tips. You know, for taxes. (Okay, I was young and clueless.) The question was met with gales of laughter.

                            I'm sure that some tipped employees keep scrupulous records as to the cash they take home every night and declare every penny of that amount as income. But I'd bet my last dollar they're in the minority.

                            1. re: Quine

                              "And you think servers cheat on reported income???"

                              Are you referring to me? I really could care less if the person I'm paying, cash only in tips, is reporting it or not. Just like I don't care if the valet, nail attendant, hairdresser, anyone I pay cash tips to does either.
                              Once the cash leaves my hand it's up to the person i'm giving it to to do whatever they want with it.
                              I'm not, as I said, their judge and jury. I'm doing them a favor by giving them cash. I know they'll have to report it if I leave it on the credit card and, so far, all of them like it. Good for them, I say.

                              1. re: latindancer

                                No I wasn't referring to you, I was adding my own opinion. I just happened to hit reply after I read yours. No insult mean.

                                1. re: Quine

                                  No problem.
                                  Nobody really knows the percentage of servers, valets, etc. who do/don't claim their tips.
                                  I'm a high tipper everywhere I go and the comment you made about the over-reported tips is fascinating....one more reason to leave cash.
                                  I like to see hardworking servers get their money immediately and after that I could care less what they do with it...it's none of my business nor should it be anyone else's either. To me it's fringe, no different than me giving a gift in cash to the busboy, the server, the manager, etc. in my favorite restaurant. I expect them to pocket it.

                                  1. re: latindancer

                                    You know you're probably correct, yeah what the heck. And you got jfood thinkin'. Since the money in jfood's pocket is after tax, his 20% tip is really equal to ~30% pre tax (let's just assume a 35% tax rate) So jfood has contributed 10% to the IRS and 20% to Mr/s Tax Evader. So what's fair is fair and there should probably be a 50-50 split on the tax payment so jfood will now reduce his tip by 5% to make it an even playing field.

                              2. re: Quine

                                "to read that people here think they are tax cheaps is so nasty"

                                I tip in cash, versus CC tipping, for a reason. I do it because I think servers deserve to NOT be taxed on tips. It's my own personal agenda (I"m not saying that all are 'tax cheaps' (your term not mine) but I tax in cash so they have the option of doing whatever they want with it.
                                I hope that clarifies my position.

                                1. re: latindancer

                                  "I do it because I think servers deserve to NOT be taxed on tips."

                                  Just out of curiosity, why do you think that servers "deserve" not to be taxed on tips?

                                  What have they done, or not done, to "deserve" this special tax status?

                                  In your view, is it a way for the government to encourage more people to take up waiting tables ... in the same way that the mortgage interest deduction fosters more homeownership?

                                  Just VERY VERY curious on this point ...

                                  1. re: latindancer

                                    And why should servers in restaurants "deserve" not to pay income taxes? We just filed our return but maybe we should file an amendment and delete some of that taxable income. Poppycock!

                        2. Sorry, but jfood for the place everything on the card.

                          All these items are inside baseball to the restaurant.

                          1. First off, any owner who's paying 3% credit card processing fees isn't a particularly astute business person. The going rate is 1.6% to 1.75%.

                            Second, it's my understanding that it's illegal in most states for the owner to deduct the processing fee from the server's tips. The remedy for an owner's illegal conduct is for the server to bring the matter to the attention of the appropriate authorities, not to expect the customers to tip differently or in larger amounts.

                            Finally, my experience is that servers prefer cash tips because most of them systematically under-report their income, and a paper trail makes it harder to commit tax fraud. I'll mind my own business with regard to this pervasive cheating, but I'm not going to go out of my way to facilitate it.

                            4 Replies
                            1. re: alanbarnes

                              Would you be so kind as to name one cc processor actually that keeps less than 1.75%?? This information will save me several grand a year.

                              With all the astuteness I have been able to muster, I find that wherever the rate is 1.75%, transaction fees, batch fees, monthly fees, statement fees and stuff they just seem to make up as they go along bring the effective rate to over 3%. That is not counting the extra 1-2 % for those "cash back" and "rewards" cards.

                              1. re: atheorist

                                One processor? I can do better than that. Try Flagship Merchant Services, Merchant Warehouse, goEmerchant, Merchant Accounts, Chase Paymentech, The Transaction Group, Merchant Accounts Express, First Data, Gotmerchant, or Electronic Transfer Inc. All of them charge under 1.75% for small businesses.

                                Yes, there are additional charges for things such as batch fees, statement fees, and transaction fees. But despite the fact that those charges raise the net percentages, they're irrelevant to the issue here because they're fixed. A $0.20 swipe fee doesn't go down to $0.18 just because a customer leaves a cash tip.

                                1. re: alanbarnes

                                  Thanks anyway. on my merchant statement the basic rate is 1.49% sure enough, but when you add it all up the bottom line is 3%. No matter where you go they will get you for that somehow. Get back to me if you really know a way around that.

                                  When you ask a proprietor how they prefer to be paid, they will always tell you to bring it any way you see fit, dear customer. 97% is that much better than zero. However...

                                  Know this. When you pay with a "cash back," "rewards" or amex card, you are nicking the merchant an extra 2% over what an basic charge card would cost him or her.

                                  Please listen up, hounds. When you are patronizing the type of business that does not hire an armored truck to deal with physical cash, or one where the chain of responsibility is not so lengthy that cash pilferage is liable to be routine, then you are patronizing a business that would prefer to be paid in old fashioned cash money.

                                  1. re: atheorist

                                    Of course they want cash - and I prefer to use credit.

                                    There are restaurants I patronize that don't take my credit card; that's their call, and if I want to dine there, I'll pay cash. There are others that don't take Amex, my preferred card, including one of my favorite places; when I dine there, I use Visa.

                                    It's the merchants call as to whether or not to take cards, and if so, which cards to take - not mine. He does what works for him, and if I want to dine at his restaurant, I do what works for me within the bounds he sets. It's not my job to figure out or second guess the owner's business plan.

                            2. All restaurants that accept credit cards for payment also have a line item in their accounting system for an expense called "credit card discount rate." It's an expense that impacts the bottom line but also reduces taxable income on the bottom line.

                              The restaurants that charge their servers for the discount rate are blatantly double-dipping. And the few restaurants that cling to the policy of hanging on to funds until they clear the cc clearinghouse are actually creating more paperwork (and therefore more expense) than if they paid them out as realized.

                              All that being said there's no reason at all to pay tips in cash unless you're aware that there's owner hanky-panky going on with cc tips.

                              Like alanbarnes said, credit card discount rates aren't the 5% I remember from the '80s. They're so low that the cost to the business in dollars is far outweighed by the value of using credit cards for convenience/safety is to the customer. I used to think that people were more willing to carry cash and think nothing of it, but then I read the hue and cry here on Chowhound from customers incensed over "cash only" restaurants.

                              1. I worked for a very small restaurant where the owner paid a small percentage in fees for credit card charges. We lost that amount on our tips. I never knew it was illegal, and frankly, my boss worked so hard and had such a hard time keeping the restaurant in the black that I wouldn't have begrudged him it. We did prefer cash tips but a good tip is a good tip either way.

                                I think smaller businesses pay a higher fee than larger ones, but I'm not sure.

                                1. pretty sure it's not illegal, just immoral.

                                  1. Has anyone considered the fact that most servers actually make a pretty decent wage when their base salary and their tips are added up at the end of the day?

                                    I know I did when I was turning tables, and this was with all the "bad tippers" out there and NOT underreporting my tip income.

                                    I think alot of the undercurrent in these discussions assumes (perhaps falsely) that servers are somehow barely scratching by and need WIC just to survive. Get real.

                                    Just sayin ...

                                    1 Reply
                                    1. re: ipsedixit

                                      My take on it is that since servers make the *bulk* of their income on tips (rather than the example of the paper delivery guy at Christmas, who I do tip in cash), it is perfectly reasonable to put the tip on a credit card to discourage underreporting. I mean most of us get our income reported on a W2; why should servers be any different?

                                    2. We've had to remove a number of angry responses from this thread, and (as usually happens with tipping-oriented threads) the discussion as a whole is increasingly unfriendly. We're going to lock this topic now.