Can my employer deduct credit card processing fees from my tip?

By , J.D. · UC Berkeley School of Law

Question: Can an Employer Deduct Credit Card Fees From Tips?

I'm a bartender at a dance club in California. We used to accept only Visa and MasterCard, but now the owner has decided to start accepting Discover and American Express cards as well. Because these new cards will charge the bar a higher processing fee for each transaction, the owner has changed its tip policy. From now on, if a customer pays with a credit card, the bar is going to deduct a percentage of our tips paid on the card, too. We don't have to pay the whole fee, but we will have to pay our proportionate share, based on the size of the tab and the size of the tip. Is it legal for an employer to take part of our tips like this?


In many states, the answer is yes. Because you live in California, however, the answer is no. A California employer may not deduct any part of an employee's tip to pay credit card processing fees.

The general rule everywhere is that tips belong to employees. However, there are a number of exceptions to this rule. For example, many states allow employers to claim a "tip credit," which means they may pay employees less than the regular minimum wage, as long as the employee earns enough in tips to make up the difference. These employers aren't taking their employees' tips, but they are getting to count those tips towards their own minimum wage obligations.

Most states also allow employers to require employees to share their tips, in tip sharing or pooling arrangements. This allows employers to distribute tips to employees who wouldn't normally receive them, in effect using tips to supplement employee incomes. For example, if a busser receives more in tips through the tip pool, the employer can pay him or her less in hourly wages.

Some states have created laws on the issue of credit card processing fees, as well. In some states, employers are explicitly allowed to reduce an employee's tip by the percentage of the processing fee. For example, if a credit card charged a 2.5% fee, the employer could pocket 2.5% of the employee's tip.

In California, however, the rules are different. California law requires employers to pay all costs of doing business; they may not pass any of those costs on to employees. Among other things, this means employers may not charge employees for cash register shortages or broken items, unless they were due to intentional misconduct. The same rule applies to credit card processing fees. California views these fees as expenses the employer should have to pay, not the employee. Therefore, California employers may not deduct credit card processing fees from employee tips.

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