The other day a restaurant owner was complaining that it didn’t seem fair to him that he had to pay the processing cost for the tip portion of the credit card charges. He was pleasantly surprised when I told him he is right. In most states it is legal for the business to deduct the ‘actual’ processing cost from the tips due an employee. The key point is that the business owner can’t make a profit by overcharging the employee for the cost. Consequently, due to the varied rates being applied by different cards, most restaurant owners have no way of calculating the amount to deduct or it is too time consuming to make it worthwhile. Now, Heartland Payment Systems will program the terminal (not available on every terminal so be sure to ask about this) to print a report that will show each server’s total tips, the cost for those transactions, and their net tips for each batch.
I happened to mention this to a group of people including a local restaurant owner who said, “how much could it add up to each year?”
So, let’s do the math: His restaurant does about $1.2 million in credit card per year which he estimated meant it was about $1 million in meals and about $200 thousand in tips. His average cost was over 2% for credit cards so we used 2% to make our math easier. That means that by switching to ‘tip discounting’ the restaurant would reduce their operating costs by $4,000 per year. Because of the size of the restaurant and the turnover in servers, etc. the effect per waitperson was only about $1-2/week.
If your credit card processor isn’t offering you ‘tip discounting’ reports, you should call or email me at once as this is YOUR money!
Best regards,
Michael Matfess
Tags: Credit Card, Processing Costs, Restaurants
