Q: Who is responsible for paying the credit card fees charged by credit card companies – the business, the employee, or the customer?
A: As the days of “Cash Only” signs in the windows are dying out and the world is becoming more and more reliant on credit cards to pay for goods and services, this question is becoming increasingly asked. Credit cards make money in several ways, including usually on a percentage fee per transaction. Most people don’t think about the credit card’s cut from each purchase, but it ends up being a huge amount. Using a food analogy, it’s like the little corner piece of a pizza cut into square pieces. With all the pizzas sold around the world, those little corner pieces add up to a gigantic piece of the pie pretty quickly.
As for who is responsible for paying that percentage, the credit card companies have a contractual relationship with the business providing the good or service, i.e. the restaurant, bar or hotel. However, legally, the business can choose to pass the charge on to its employees or to the consumer.
Increasingly, restaurant and bar employees are seeing their employer subtracting the credit card percentage fee against their tips on credit card transactions. That action is permitted under the Fair Labor Standards Act (but may violate state law, depending what state you are in). Under the FLSA, for example, where a credit card company charges an employer 2 percent on all sales charged to its credit service, the employer may pay the tipped employee 98 percent of the tips. The caveat is that the reduction may not reduce the employee's wage below the required minimum wage.
The businesses are also now allowed to pass the charge onto consumers based upon the settlement of a class-action lawsuit in 2013. Prior to that, most credit card companies did not allow the practice. Now, a business can add a disclosed surcharge fee for credit card purchases to the final cost of a good or service.
As has been a theme so far in the Weekly Legal Bites column, the “can they?” and “should they” questions result in different analysis. If the business charges the credit card processing fee against the tipped employees, it could be an accounting nightmare. The business likely pays a different percentage fee on each type of credit card, and must deduct the correct amount from each charge against each employee. It could require overhaul of existing systems and require substantial bookkeeping changes. If the business passes the charges to the consumers, they may lose a competitive edge on prices, as many big box retailers refuse to pass that charge on to customers.
Jonathan Boulahanis is an attorney in the Chicago office of Clark Hill PLC and is a leader of the firm’s Food and Beverage team. Since Jonathan can’t cook like his Italian mother and the fast food was going to his hips, he became a self-proclaimed foodie. As an attorney, he has made a commitment to serve the food and beverage industry, no pun intended, by representing restaurants, bars, individuals, and other food and beverage businesses with various legal issues as they arise. You can reach him by sending an email to submissions@shiftgig.com.
LEGAL DISCLAIMER:
The responses provided in this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Use of this blog does not create an attorney-client relationship between Jonathan Boulahanis or Clark Hill PLC and the user.
*This article was posted as part of a question and answer series that Jonathan Boulahanis is conducting with Shiftgig.com. The article, as well as all other articles in the series, can be found at http://www.shiftgig.com/articles.
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