Who is Paying the Credit Card Fee on Your Charged Tips?

    restaurant-tip-jar This is an important question since table service restaurants as an industry, average 80% of their sales paid by credit card while many fine dining establishments are close to 100%. This high volume of credit card transactions also creates a problem for restaurateurs paying the staff their charged tips at the end of the shift. With little cash being generated, the owner has to keep enough cash on hand to cover the daily charged tip pay outs.

    That’s a big enough hassle, but what about the credit card processing fees on those charged tips? How much is it and who is paying the fees? The restaurant advances cash for the charged tips and waits a day or more for their money from the credit card processor. The credit card processor of course charges their processing fee on the tip amount in addition to the original charge amount. Since the restaurant doesn’t share in the tip proceeds and advances the tip why should they also pay the fee?

    How much are we talking about? Let’s take a table service restaurant doing $100,000.00 per month in credit card sales with an average of 18% added for tips. That means the restaurant is paying the expense for processing the $18,000.00 of charged tips. Let’s assume the average processing rate of all cards for this restaurant including American Express is 2.75% (this is probably a low average), but that means the restaurant is paying $495.00 per month in processing fees on just the charged tips. That’s $5,940.00 per year or almost $30,000.00 over five years!

    Most restaurant POS systems today calculate the processing fee on the charged tip portion with a separate percentage based on the credit card used, then deduct this from the cash tips due at the end of the shift for each staff member. While these fees are not much per employee per shift, they do become significant to the restaurant. Since the restaurant POS system is doing all the work, why not allocate this money to offset the POS lease?

    This is just one of many ways the correct Point of Sale system can quickly pay for itself and then start putting that money to the bottom line. For a complete list of restaurant POS features, check out the list on our home page. For more information on how a restaurant POS system pays for itself, see our FREE white paper “POS and a Whole Lot More”.

    As you can see this could amount to a lot of money, but since different locales have different rules and regulations we always suggest that you verify this practice with your attorney before implementation.

    For more POS information visit our home page at POS-Advice and for a weekly recap of restaurant industry news and ideas subscribe to our Restaurant Newsletter.

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