Some servers to pay for the price of getting a tip

If you really love restaurant workers, you’ll start paying your tips in cash.

Star Tribune columnist Jon Tevlin reports today that one prominent restaurant chain is going to start deducting the cost of credit card fees from tips intended for the wait staff when the customer includes the tip on a credit card.

Blue Plate Company, owner of Freehouse, Highland Grill, the Lowry, Scusi, Three Squares Restaurant, Longfellow Grill, Edina Grill, and Groveland Tap, is absorbing a $1.25 million increase in cost because of the new health care law and the minimum wage, Tevlin reports. But the staff will pay for the credit card charges on tips. That should reduce tips by 2 percent.

The owners said that absorbing the health care costs and minimum wage hike at the same time is a “perfect storm.”

Still, making servers pay for credit card charges seems cheap to some. “We believe that the industry is over ­reacting,” said Wade Luneberg, secretary/treasurer of MN State Council of UNITE HERE Unions. “Putting [minimum wage] fees on tickets and passing the cost on to consumers directly is strange at best, and creates an ‘us against them’ mentality while ordering dinner.”

Luneberg added that Blue Plate joins Parasole Restaurant Holdings in asking servers to pay credit card fees, and notes both are among the most successful restaurants in town.

“Parasole had $30 million in sales last year and just opened a new Tim McKee restaurant in Calhoun Square,” Luneberg said. “Blue Plate just opened a 300-seat facility in the warehouse district with a full brewery. [They also just announced they will operate a restaurant at the State Fair]. Business must be terrible.”

  • Jim from River Falls

    I’ll stop thinking it’s about being aggressive toward their workers when they put on surcharges for higher energy or food costs. Beef is up over10% in a year – why not a special charge for that?

  • Kassie

    I don’t understand why the business don’t just raise the cost of their food. Entrees and drinks going up $0.25-$0.50 isn’t going cause any stir among customers nor will business go down, but being in the paper for screwing your employees may keep some people away.

    • Apparently, this chain did raise the price of food.

      • Kassie

        But not enough to cover the cost of doing business. That’s why they are putting the costs on the servers, right?

        Out of curiosity, would the servers be taxed on the tips before or after the credit card fees are taken out? Or to put it another way, when the employer reports the credit card tip income to the IRS, are they going to report the amount before or after they take the fee out?

        • Ooh, good question.

        • Jack

          Great point – the logic that is being applied now should have been applied before to cover the employer’s portion of FICA. Love to see the restaurant justifying that.

          Perhaps the AG or Department of Revenue might want to look into the wage reporting that these businesses are doing. Seems to me that there was an issue at an “adult entertainment” establishment related to tips given to the ladies that were not given 100% to them. Case was within past 5 years I believe.

        • DeniseCS

          I worked at a restaurant that deducted 2% of my tip to cover credit card fees (and this was long before the minimum wage increase). The two percent is deducted prior to income taxes; I was only taxed on what I actually earned. This issue is being overblown by the media. While it’s not as common in the Minnesota restaurant community, it is common practice to deduct the 2-3% from servers tips to cover the credit card fees. The restaurant is not “making money” by doing so, they are still paying the balance of the fee (typically 3-3.5%). I understand why Blue Plate is doing this but I think it was bad timing to make it coinside with the minimum wage increase.

    • kevinfromminneapolis

      This 50 cents might not, but the next 25 and the 50 after that will. I dine by myself quite a bit and with sit down meals at half decent places approaching $15-$20 with a tip you bet I’m eating out less.

  • Jim G

    We eat at Parasole restaurants, and even have one of their loyalty cards. I was unaware of this policy of charging credit card fees to servers’ tips. Thanks for bringing this to my attention. As a consumer, I’m going to do a couple things with this knowledge. #1. Choose an alternative restaurateur more frequently. #2. Carry enough cash to adequately compensate the servers. #3. Hand it directly to them.

  • bkmn

    Wouldn’t the wait staff be exempt from the minimum wage increase? That would only hit the non-wait staff (dishwashers/cooks/etc.)

    I won’t give any business to companies that screw over their employees like this.

    • That’s apparently one of the issues. There was no “tip exemption” in the minimum wage bill.

    • Justin M.

      Minnesota isn’t a tip-exempt state. I bartend/serve part-time, and we are paid minimum wage. However, I am in a smaller community and the tips aren’t comparable to what servers make in the Twin Cities. So the argument that servers average $20-30 an hour with tips is not valid. Sure, some nights (on a busy weekend) I may average that much, but there are plenty of nights where I wouldn’t even be making minimum wage if I wasn’t being paid that plus tips.

  • John

    HEY it’s simple… If I pay a tip by adding it to my CC invoice I usually tip 20% for good service. It’s a tax deductible amount for me cause it’s rolled into the cost of my business lunch/dinner. If I pay the tip by cash, it’s not beneficial to me…too much work to do the bookkeeping…therefore I leave about 10%. So to all you servers out there..which way do you want it? 10% in cash or 20% that you get clipped 2 to 3% for Credit card fees… Let me do the math… on a 100$ tab, You can get 10 dollars cash or 20$ MINUS 3% ( 60 cents) via the CC… Please let me know which way you want it.

    • Ali

      You only tip 10% with cash because there is nothing in it for you? The tip should be reflective of the service given, not what you can “write off”. I served in a state where tipped employees were only paid $2 an hour and our paychecks after taxes were literally written out as zero dollars and zero cents. I bet you consider servers who end up on Medicaid or food stamps to be the “takers”, even though your tipping practices are based on how much you can keep from paying in taxes.

      I have been aware of the Parasole practices for a while now. I still like their restaurants and their servers very much. I just make sure and bring cash for the tip every time.

      • john

        You know, you’re right, from now on I’m going to actually leave a tip based on the service provided, which as I think back to the several hundred dollars of restaurant bills I’ve had in the last couple of weeks, there was only ONE server that earned more than 10%, from now on I’m going to be much more accurate…and generally that falls somewhere between 3 and 5 percent of my bill. Your last line of, “your tipping practices are based on how much you can keep from paying in taxes”… you need to wake up and smell the coffee….MOST EVERY monetary decision made by businessmen…the very people who provide for your job…who you seem to demonize, is based on the benefits of tax minimization. So from now on I’m going to tip in direct value to what service I got. You’ll be saving me a significant amount of money. Thank You

        • Jerry

          Clearly someone who tries to write off his Christmas gifts. And I love that bs line about businessmen providing jobs because apparently they earned their money in a vacuum.

          • john

            So great how you just make assumptions without facts. For my little business which I have owned since 1982, I have 4 employees who make more money than I do every year. I have started several more in successful businesses after they demonstrated great talent working here. The people around me are rewarded because of their loyalty and commitment and input to the company. Yes I write off the Christmas gifts that are allowable by the IRS, and tons more that aren’t. When I die, all of my company is going to those that helped build it. My child will get the continuing family money that I inherited. Perhaps a little less jealously and entitlement and more creative economic building on your part and you’d be a happier camper. I once sent a server that took very good care of me on a trip to Vegas. Have you done similar?

          • joetron2030

            > Yes I write off the Christmas gifts that are allowable by the
            > IRS, and tons more that aren’t.

            So, you’re committing tax fraud? I’m not ganging up on you here. I’m just trying to make sure I understood what you’re saying correctly.

          • John

            no just bad wording… I write of those that are tax deductible but give many more that aren’t

          • joetron2030

            I thought that might have been what you meant. Thanks for the clarification.

          • Jerry

            I’m not sure how I come across as entitled and jealous from my comment, but you seem to have a bit of a persecution complex

        • Dubber

          That was masterclass in mansplaining, John. We are wrong to criticize… businessmen… without whom society would collapse into socialist chaos.

          It’s also more than a little telling that you have become so irate that you’ve decided to stick it to the people who serve you, day in and day out, as a way of exacting revenge on a commenter who was replying to your own comment where you called out servers for getting paid too much.

        • Ralphy

          Your tip based on the value of service is usually 3 to 5 % of your bill? Only one server earned a tip over 10%?!
          Unless you are in Europe or a take-away counter, there is no other way for me to describe that other than shamefully cheap. Of course, if you are a regular, and the server knows they will be lucky to get a buck on a $20 tab, I suspect you’re getting the level of service you’ve historically paid for.

    • Ralphy

      I understand the IRS taxes tips based on a 12% rate. If you have a $100 tab, the IRS assumes a $12 tip and taxes earnings accordingly. Your $10 tip is leaving your servers in an over taxed and under paid position.

    • Justin M.

      John, your tipping practices show 2 things: 1) you’re a lousy tipper, and cheap to boot. 2) You have clearly not put in any time in the service industry, given that you think that 10% is acceptable, let alone 3-5%. Just because someone is working in a restaurant doesn’t make them less of a person or not deserving of a decent tip. I work a full-time job at one of the largest banks in the country, and I bartend/serve at 2 other places part-time to supplement my income and make sure I have extra cash around for things I give to my teenagers (and myself). The majority of people are not cheap like you, and I guarantee you, servers know that you’re cheap and will not give you exemplary service if they know they’re going to get stiffed. And anything less than 15% is being stiffed. Especially considering the standard gratuity for groups larger than 6 is typically 18%. Time to start tipping like it’s the 21st century, not the 19th.

      • John

        Dear Mr. Tboom… I’m sorry that you can’t read between the lines. If you re-read everything you’ll see that I’m a 20% tipper. Often 30 and 35%. I was trying to make a point to these people that don’t seem to understand that there’s a lot more serious things to whine about then servers being asked to pay the 2 or 3 percent CC charge on the tip portion of the bill. For 20 Bucks that might be 60 cents. In my restaurants we pay that gladly, (we’ve had servers who have gotten 1,000 dollar tips) BUT the folks who work for us are loyal and dedicated and give it back in many different ways. On the other hand, if I had a 300 store franchise and a constant turnover of employees, I don’t see that it’s unfair for the company to expect to be able to deduct a cost of doing business. Most all of the people who are servers to me when I’m out, wouldn’t last a day in my operation. They haven’t got a clue of what service means, or sometimes even a smile and an eye to eye contact. I don’t believe folks should expect a large gratuity without giving something back for it. That attitude seems to be very much in the minority on this page. I have no regrets or apologies to make, other than perhaps not being clear and pointed in my statements. I sleep good at night and so does my staff.

  • John

    WHY WAS MY COMMENT DROPPED?

    • joetron2030

      The comment above this one?

  • joetron2030

    Not sure if anyone can answer this.

    Is the restaurant charged a separate processing fee for the dining bill and a separate fee for processing the tip? If not, how do we (or the servers for that matter) know that the restaurant is fairly deducting the right percentage from the server’s tips?

    The more I think about it, the more it seems like the restaurant is basically taking the CC processing fee in total from the server’s tips. Maybe I’m mistaken on this.

    • alex

      It’s settled as one transaction. The interchange discount % would be easilly applied to the tip section alone.

      • joetron2030

        Thanks, Alex.

  • kevinfromminneapolis

    I’m not sure I’m a fan of doing it this way, but it’s a relevant reminder that somewhere, somehow, somebody pays for everything. Applies to credit card tips and minimum wage increases.

    I’d prefer to leave cash tips, but I rarely carry more cash than I’d need to buy bus fare if I lost my card.

  • Moffitt

    I rarely eat at these joints, but of I do, I’ll tip in cash.

  • J-dawg

    This seems like an awkward attempt to link credit card fees and minimum wage fees. The first I can see, the second is just petty partisan grandstanding.

  • tboom

    Once frequent trips to the restaurant are now occasional (we’re trying to eat healthy which is easier, taster and more cost effective at home). That said I’ve always paid the bill and the tip in cash, figured it saved the restaurant the transaction fee and was a more immediate reward for the server.

  • JP

    I really hope people don’t start boycotting or visiting these restaurants less because of this new policy. I think a boycott would hurt the pockets of the employees more than the owners. If the new policy bothers you, just remember to tip in cash for good service

    I’ve heard rumors for years that restaurants deduct credit card fees on tips, but in reading the Star Tribune article I got the impression that this sort of practice is rare. Anyone in the food service industry have any more insight on how uncommon or common this is?

    • DeniseCS

      I worked in a restaurant that deducted the 2% fee from my tip. It’s not as common in Minnesota as it is in other areas. It never bothered me, it didn’t affect the amount I earned that much ($3-4 a night). It was an excellent job with a flexible schedule, perfect for when I was in school.

  • Todd the Liberal Democrat

    The tipped employee pays the fee for the money they keep, the restaurant pays for the money they keep. Having the restaurant pay the fees for money that isn’t theirs was a benefit for staff that, along with many other things, is harder and harder to justify in today’s economic climate.
    Why do so many restaurants fail? Because it is a tough industry to succeed where a lot of things can go wrong. Treating your staff well and limiting turnover is sound business. This decision isn’t about abusing servers (who are generally the highest paid hourly members of the staff), it’s about walking the thin line between keeping your good staff happy and making the numbers work in a wildly unpredictable economic environment. It’s what you have to do to stay in business. Perhaps being independent and successful (Blue Plate and Parasole) should be congratulated, not held up as an examples of evil empires that thrive on the abuse of the their workers.

  • graycloud

    so you are willing to support your local business as long as they hide their cost of doing business from you? HYPOCRITES! if you are willing to support your local business and workers as well you will understand that nothing is free, and that not purchasing from them will not only hurt the business but in the long run the servers and the community. if you would rather have your true costs hidden behind some veneer of please east at kfc or mcdonalds.