Some restaurants tell waitstaff to eat tip-related card fees

Parasole restaurants, like Salut in St. Paul, Minn., have decided to deduct 2 percent from the tips wait staff receive on credit or debit cards. The idea is to offset the processing fee Parasole pays on tips put on plastic.
MPR Photo/Nikki Tundel

To recover the costs of credit and debit card use, some Minnesota restaurants are passing along tip-related fees to their waitstaff.

When diners charge the tab and tip to a card, the card issuer takes a cut, along with other parties that make electronic transactions possible. The fee is typically between 2 and 4 percent.

Like many restaurant companies, the Parasole Group pays the credit and debit card transaction fees on tips paid to the waitstaff. Recently, company executives changed policy and now deduct the tip portion of the fees from the server's tip checks.

The Salut restaurant on Grand Avenue in St. Paul is one of 14 area restaurants operated by the Parasole Group.

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Parasole officials would not be interviewed for this story. But the company is reportedly charging servers 2 percent of any tip put on a card and using the money to offset tip-related transaction fees.

That doesn't sit well with Angie Swetland of Eagan, who dined at Salut this week.

"I think the customer anticipates that the entire amount they've given for a tip is going to the wait person or possibly shared with kitchen staff," she said. "But they don't anticipate it will be recouped by the restaurant itself."

Swetland waited on tables when she was in college.

"I counted on those tips," she said.

And she said restaurants should either eat the fee charged on tips or add them to the to the food price.

In a recent interview with the Star Tribune, a Parasole executive defended the policy, saying the company paid more than $2 million in credit card fees last year. Parasole told the newspaper it has maintained its health care plan despite rising costs and still offers employees paid vacation time and free meals.

The company said it is time servers bear the cost of tips that go on credit and debit cards. Servers average $20 an hour, between tips and wages Parasole said.

For instance, on a $10 tip, company withholding works out to 20 cents.

"The restaurants that are doing this are acting within existing law," said James Honerman, spokesman for the Minnesota Department of Labor. "If it costs the employer to process the tip, it does not violate Minnesota statutes or rules to charge the employee the actual cost of processing that tip on a credit card."

It may be legal. But it's not fair, said Wade Luneburg of Unite Here, Local 17, a union that represents about 5,000 hospitality industry workers in the Twin Cities and Rochester.

"The union believes the credit card fees are a cost of doing business," he said. "I believe our membership and servers in general — organized or not organized — would have an understanding that the tips are the sole property of the servers."

Parasole is not the only restaurant firm trying to recover fees related to tips. But restaurants aren't inclined to publicize this, fearing they'll be perceived as cheapskates.

"It is not terribly common," said Dan McElroy, executive vice president of the Minnesota Restaurant Association. "We have a number of members who do it."

Both restaurants and servers can benefit when customers use credit or debit cards, McElroy said. Customers tend to spend more when they pay with plastic. As a result they may leave a slightly larger gratuity, he said.

For now, most restaurants are not charging their employees' tips to cover card costs.

Lenny Russo, owner of the Heartland Restaurant & Farm Direct Market in St. Paul, picks up the fees assessed on tips. He considers it an employee benefit, but he understands why a restaurant company might feel it should collect the fees from servers.

"Most of the credit cards that we receive are frequent flier cards, reward benefit cards," Russo said. "Those cards come with a very high processing fee. The credit card isn't giving you free stuff. The credit card company is tasking the money from the merchant to give free stuff. Any kind of benefit you get on one of those cards is paid for by the merchant. It certainly is not paid for by the credit card company."

Russo has simple solution:

"If you want to make sure that entire tip is going your server and the bank isn't going to get it, tip in cash."

But that would mean fewer spending incentives for customers who charge their meals — plane tickets, cash and other rewards — and force diners to choose between rewarding themselves or their servers.