Kenney Bill- Waiter tips/credit card transactions

[Cya]

Bill would keep credit-card fees from cutting tips | Philadelphia Inquirer | 11/11/2011

The bill, introduced by Councilman James Kenney, would prohibit restaurants from deducting credit-card transaction fees from any tip included on the bill.

Here's the math: Suppose Kalkstein spends $100 and tips 20 percent, or $20.

When Kalkstein puts the entire $120 on his credit card, the credit-card company will charge the restaurant an average fee of 2 percent, or $2.40, to process that transaction. Of the $2.40, $2 is attributable to the food-and-drink part of the bill and 40 cents is attributable to the $20 tip.

Some restaurants, Kenney said, will deduct the 40-cent fee from the server's tips.

"I never thought of that," Kalkstein said. When he tips $20, he said, "I expect the waiter to get the 20 bucks."

Servers, paid a minimum wage of $2.83, rely on tips for the bulk of their wages.

"You can't justify paying someone $2.83 an hour and then dip into their tips to defray your costs of doing business," said Kenney, a former bartender. "It's like taking money out of their paychecks to pay for air-conditioning."

I'm going to side with the waiters on this one. Every time I use a credit card and include the tip, I always assume the entire tip is going to the waiter/waitress.
It will be interesting to see which council people vote against Jim Kenney's bill.
Those who are in the pockets of the restaurant lobby?

[hubba1]

I'm going to side with the waiters on this one. Every time I use a credit card and include the tip, I always assume the entire tip is going to the waiter/waitress.
It will be interesting to see which council people vote against Jim Kenney's bill.
Those who are in the pockets of the restaurant lobby?

this must only happen at smaller places, as I know a LOT of servers and none of them have ever had this happen to them, it does suck though and that is part of running the business, it's a cost that the owners need to pay, not the servers making 2.00 an hour!

[BarryG]

this must only happen at smaller places, as I know a LOT of servers and none of them have ever had this happen to them, it does suck though and that is part of running the business, it's a cost that the owners need to pay, not the servers making 2.00 an hour!

Not just small places, Steven Starr is notorious for this practice. However I don't think this practice is particularly widespread.

[ColeenH]

I always assume the entire tip is going to the waiter/waitress.

Even if the restaurant owner doesn't dip into tips for the credit card fees, a portion of tips are taken away from the waiters/waitresses and given to the bussing staff that clear and reset the tables.

[bluecuracao]

Not just small places, Steven Starr is notorious for this practice. However I don't think this practice is particularly widespread.

I have only ever heard of Starr and Garces restaurants doing this. I don't think small places with less tip income would be able to get away with it...they would end up with irate servers telling customers to pay in cash.

[thoth]

I wonder how you would enforce this, but I have to say it's pretty lame that the restaurants pickpocketing the waiters to pay for taking credit cards. Don't like the fees, you don't have to accept credit cards. Don't put it on the backs of your workers.

[billy ross]

I wonder how you would enforce this, but I have to say it's pretty lame that the restaurants pickpocketing the waiters to pay for taking credit cards. Don't like the fees, you don't have to accept credit cards. Don't put it on the backs of your workers.

If the method of payment used discounts the amount paid from the face value of the transaction, I don't see how it would be unfair to discount the amounts paid pro rata to both the waitstaff and to the restaurant itself. To ask the restaurant to take the hit and pay part of the waiters tips seems unfair, just as it would be unfair to ask the waitstaff to absorb all of the discount so that the management absorbs none of it.

Waiters used to work in a cash business, and they famously didn't declare their income. Now this is all traceable, and so waitstaff need to declare more income and thus pay more taxes. Is that too 'putting it on the backs of ... workers'? Should management step in to pay the taxes for the workers so that they get to take home 100% of their gross like before, or should management deduct the taxes from the workers' checks? After all, it was management's decision to accept credit cards, and this has caused a severe contraction in the percentage of their income waiters actually get to take home. The credit card fees are a trifle compared to the real money the government takes. Clearly it's management's fault that this has happened.

[Scoats]

The credit card fee situation is effed up and wrong on so many levels.

In today's world, businesses can't really not take credit cards. They are stuck.

What smart consumer isn't going to take Amazon points and dividend miles? But someone does pay for those rewards. The cost is hidden and passed along to merchants.

With rewards credit cards, the merchant can pay up to an extra 3% per credit card transaction, bringing the fee to 5%. So in the example above, the $2.40 charge becomes $6.00. And 20 cents becomes a buck. Serious money for a service that usually requires almost zero human interaction.

If a business owner is going to take the processing cost from an employee, he/she should also expect the state to give back the 2 to 5% in credit card fees to collect sales tax.

[sharkey]

Seems Kenney and his crew think that they should regulate every part of every transaction that takes place in Phila. Waiters can ask about a restaurant's credit card fee policy and take it into account when they decide where they want to work. They can also choose a union shop where they have representation to negotiate issues like this. What will Kenney want next, to regulate how much tip you must leave so that hard working waiters don't get cheated? That would seem more equitable, since a waiter could provide good service and get cheated bya cheap customer.

[robot]

If the method of payment used discounts the amount paid from the face value of the transaction, I don't see how it would be unfair to discount the amounts paid pro rata to both the waitstaff and to the restaurant itself. To ask the restaurant to take the hit and pay part of the waiters tips seems unfair, just as it would be unfair to ask the waitstaff to absorb all of the discount so that the management absorbs none of it.

Waiters used to work in a cash business, and they famously didn't declare their income. Now this is all traceable, and so waitstaff need to declare more income and thus pay more taxes. Is that too 'putting it on the backs of ... workers'? Should management step in to pay the taxes for the workers so that they get to take home 100% of their gross like before, or should management deduct the taxes from the workers' checks? After all, it was management's decision to accept credit cards, and this has caused a severe contraction in the percentage of their income waiters actually get to take home. The credit card fees are a trifle compared to the real money the government takes. Clearly it's management's fault that this has happened.

I agree that it is not unfair to ask waiters to pay a pro-rata share of the credit card fees.
I think the real issue is, as you recognized, that waiters want to be paid cash so that they can avoid paying taxes. Any waiter, or restaurant owner, with a brain knows that because of credit cards people spend more on food and drinks then they would have with cash, which leads to bigger tips. I think this bill is frankly bad for waiters because if it passes more people will put the tip on credit card which means wage tax, fica, and all the other stuff.

A related annoyance is when cash only restaurants charge me sales tax. It is just gravy for them because they are never going to pay it to the state.

[sharkey]

I agree that it is not unfair to ask waiters to pay a pro-rata share of the credit card fees.
I think the real issue is, as you recognized, that waiters want to be paid cash so that they can avoid paying taxes. Any waiter, or restaurant owner, with a brain knows that because of credit cards people spend more on food and drinks then they would have with cash, which leads to bigger tips. I think this bill is frankly bad for waiters because if it passes more people will put the tip on credit card which means wage tax, fica, and all the other stuff.

A related annoyance is when cash only restaurants charge me sales tax. It is just gravy for them because they are never going to pay it to the state.

I believe that the IRS imputes a certain tip income to waiters based on the amount of sales they ring up.I am not sure of the percentage; it may be 15%. Consider that if a lot of cheapos stiff them with no tip or a very low tip, not only did they not get paid for their labor (other than their miniscule hourly wage) but they must pay taxes on money they did not receive.

[Cya]

A related annoyance is when cash only restaurants charge me sales tax. It is just gravy for them because they are never going to pay it to the state.

I can't recall a "cash only" restaurant that I've been to in many years.... except the Original Chickies and Pete's in Mayfair. They only take cash. No credit cards.
Imagine that? A big chain like C&P's and they don't take credit cards?
Luckily I know this before heading in. Some patrons do not. I've seen a couple of awkward moments when that happens!

[BarryG]

I can't recall a "cash only" restaurant that I've been to in many years.... except the Original Chickies and Pete's in Mayfair. They only take cash. No credit cards.
Imagine that? A big chain like C&P's and they don't take credit cards?
Luckily I know this before heading in. Some patrons do not. I've seen a couple of awkward moments when that happens!

There are tons of cash only restaurants in Center City and South Philly. Usually BYOBs. There are a couple cash-only places with a liquor license (e.g., Villa di Roma) but that is a business case I can't understand at all. Even if you want to hide your money from the taxman, the profit on the extra drinks a credit card carrying patron will buy has to outweigh the taxes.

[Hospitalitygirl]

I believe that the IRS imputes a certain tip income to waiters based on the amount of sales they ring up.I am not sure of the percentage; it may be 15%. Consider that if a lot of cheapos stiff them with no tip or a very low tip, not only did they not get paid for their labor (other than their miniscule hourly wage) but they must pay taxes on money they did not receive.

The IRS does indeed do this and the rate is 15% if I remember correctly.

[eldondre]

I believe that the IRS imputes a certain tip income to waiters based on the amount of sales they ring up.I am not sure of the percentage; it may be 15%. Consider that if a lot of cheapos stiff them with no tip or a very low tip, not only did they not get paid for their labor (other than their miniscule hourly wage) but they must pay taxes on money they did not receive.

that's correct. they have to pay tax whether they receive a tip (though I have no idea what the imputed amount is). I don't think it's a huge issue in tip friendly Philadelphia...and anything they receive in cash over and above the imputed amount they can keep tax free. I really don't understand why people think giving the workers the tip net of the prorata transaction costs is wrong, it seems pretty straightforward and, well, right.

There are tons of cash only restaurants in Center City and South Philly. Usually BYOBs. There are a couple cash-only places with a liquor license (e.g., Villa di Roma) but that is a business case I can't understand at all. Even if you want to hide your money from the taxman, the profit on the extra drinks a credit card carrying patron will buy has to outweigh the taxes.

reminds me of the first time I went to mcglinchey's and my friend asked if they took cards, fred said "do I look crazy?" scaots is right, of course, the current setup favors the banks. it's illegal to offer cash discounts even if cash is cheaper. mind you, cash probably carries risks and costs but without that ability, I'd guess merchants lose a key weapon in keeping the fees down since there's no benefit to consumers to use cash, many will take the perks, thus the banks are really getting overpaid for their services. that'd be like stephen starr and garces getting a law passed that nobody could offer drinks more cheaply than they do. I can kind of understand why you would't accept cards, some people might have a conscience and not want to help huge banks and help customers get into debt.

[BarryG]

\
reminds me of the first time I went to mcglinchey's and my friend asked if they took cards, fred said "do I look crazy?" scaots is right, of course, the current setup favors the banks. it's illegal to offer cash discounts even if cash is cheaper.

This isn't true, merchants can offer a cash discount on the sticker price, but cannot add a surcharge for credit card transactions. Many gas stations flagrantly offer cash discounts. I'm sure there are limitations to this policy though, which may be why we never see it at restaurants. Merchants are also not allowed to have credit card minimums, though many do anyway.

And none these things are "illegal," per se, they are violations of the agreements merchants sign with the credit card companies.

The credit card companies have merchants by the balls but it's just part of the cost of doing business today. Governmental regulation of debit card fees had the perverse effect of banks trying to shift these fees directly to consumers instead of merchants. Is that really better? Worse than the fees to me is the fact that any chargebacks hit the merchant, and the insane burden PCI compliance can put on a small business.

Incidentally, Divan turkish restaurant charges a 10% surcharge for credit card purchases. It's like they want to cover the processing fees plus the taxes. They advertise is prominently on their website, I don't know how they get away with it.

[Ho Chi Minh]

I can't recall a "cash only" restaurant that I've been to in many years.... except the Original Chickies and Pete's in Mayfair. They only take cash. No credit cards.
Imagine that? A big chain like C&P's and they don't take credit cards?
Luckily I know this before heading in. Some patrons do not. I've seen a couple of awkward moments when that happens!

There are more than you would imagine. Even places like Bibou, with entrees at $30.

[robot]

There are more than you would imagine. Even places like Bibou, with entrees at $30.

Loads of the BYO places in the city are cash only. I guess since they don't sell Booze, they don't get the benefit from the another round drinks that more than offsets the 3% for most restaurants.
Rare are the cash only places with liquor licenses. The only ones I can think of are Ralphs and Villa Di Roma.
Ralphs is really annoying because they also have an ATM, so they basically make you pay a fee if you don't have enough cash.

[Valley Twin]

that's correct. they have to pay tax whether they receive a tip (though I have no idea what the imputed amount is). I don't think it's a huge issue in tip friendly Philadelphia...and anything they receive in cash over and above the imputed amount they can keep tax free.

Actually, anything they make over and above the imputed 15% isn't tax-free. Servers are supposed to report tips so that the amount of tax withholding can be reconcilled by the restaurant. You can (and some do) dispute the 15% if they don't actually take in that much. Although they're supposed to, my experience has been that it's pretty rare that anyone steps forward to say that they made more than 15%.

[BarryG]

Loads of the BYO places in the city are cash only. I guess since they don't sell Booze, they don't get the benefit from the another round drinks that more than offsets the 3% for most restaurants.

Yea the margins are really slim for restaurants that don't sell liquor. That's why most of them have chef-owners, they wouldn't make any money if they had to pay a chef.