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Are You Deducting Credit-card Fees from Servers' Tips?
An Under-the-Radar Practice
By Kelly Pate Dwyer, The Denver Post
Knight Ridder/Tribune Business News

July 14, 2004 - Inside the city's swankiest high-end restaurants, an illegal but increasingly common practice goes on each day: The owners take more than 2 percent of servers' tips to help cover costs of processing credit cards.

Tamayo, Zengo, Restaurant Kevin Taylor and others do it.

The operators say it's a cost of doing business. Some believe it's legal.

Not so, according to the Colorado Department of Labor and Employment.

"The employer can't do it," said Mike McArdle, director of the department's Labor Standards Division. But, he said, more and more are.

Around Nov. 1, Patrick Hart and a few other servers at Tamayo Mexican restaurant in Larimer Square noticed a new deduction on their nightly checkout slips.

It's a small amount. On one evening, for instance, Hart rang up $955 in food and drink sales and $209 in tips. Hart tipped bussers, bartenders and food runners about $70 -- or 7 percent of sales. The restaurant's computer automatically deducted $4.67 for credit-card processing. Hart said he pocketed $130.

That's decent money for five hours of work, Hart said.

But the fees add up. He said Tamayo has shorted him $640 in the past eight months.

And it's an issue of principle.

"It's an under-the-radar practice," Hart said. "I want to bring it out in the open." Alfredo Sandoval, director of operations for Tamayo and Zengo, at Riverfront Park, said it is common here and elsewhere to pass along processing fees to wait staff. The owners also run restaurants in San Francisco, New York and Las Vegas.

"Nowadays, the cost of operating is very, very high," Sandoval said, noting credit-card companies charge him more than 2 percent of total transactions. "We are in the business to make money, so we are looking at every way we can to stay profitable.

"For the employee, it's just a couple of dollars a day," Sandoval said.

Hart doesn't buy that argument.

"Any business incurs an expense to pay its employees -- payroll taxes, accounting costs," but those costs don't get deducted from workers' paychecks, he said. "We're basically taken advantage of because we're tipped employees." State law says that employers can dip into workers' tips only if they hang -- in a conspicuous place -- a 12-by-15-inch sign saying so. Tamayo and the other restaurants don't display such a sign.

It also says that any deduction taken from tips, including credit-card fees, nullifies the tip credit restaurateurs receive. A tip credit is what allows an employer to pay tipped employees $2.13 an hour instead of the $5.15 minimum wage when their tips exceed $5.15 an hour.

That's where things gets complicated.

Denver chef and restaurateur Kevin Taylor said he's visited with state labor department officials on this issue and has been assured that withholding credit-card fees from servers' tips is legal, so long as employees make at least $5.15 an hour.

"I've been through this before, and I've been through an audit two or three years ago," Taylor said.

The outcome?

"Nothing. We were clean. We paid nothing. They're all allowable deductions," he said.

McArdle admits the laws are confusing. And the illegal practice of tip deductions has increased as more chains move into Colorado, he said, because it's legal in some other states.

The Colorado Restaurant Association is fielding more calls on the subject from servers and restaurateurs, executive vice president Cindy Weindling said. It will be the subject of the group's August newsletter.

"I think there's some confusion out there now about what you can and can't do," she said. "Most of the operators should have this information posted in their restaurants already." The state labor department is investigating the claims of Hart and two of his co-workers and will try to mediate between them and Tamayo's owners.

The labor department has little enforcement power, but it will provide a written interpretation of state law to a court if things go that far, McArdle said.

He said his office meets with trade associations to get the word out about the tipping and other practices -- such as charging employees for their uniforms -- that are illegal in Colorado but legal in some other states.

McArdle also expects the tipping issue to arise this fall, when the state plans to rewrite its wage laws to reflect federal overtime rules. The hearings are open for public comment on that and other wage issues.

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(c) 2004, The Denver Post. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail

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