Dear Larry, first of all, I wanted to thank you for your information that you make available online. I came across your Blog this morning and have found it to be great information. I have a question regarding the tip situation. As you are aware there are many topics on this subject matter. I ran across information that says you can and can't deduct on credit card service fee from tips. I also ran across an article that mentioned you can simply add a gratuity charge to the overall service ticket much like a service charge, and then deduct your % first before giving remainder to the staff their gratuity. Since our industry has not qualified us for the tip tax credit and I know we have been battling it for a decade or more, what is the best way to handle covering some cost on the employer's side of the tip issue legally?
I am from Texas and have been in business 14 years, I employ approximately 85 employees and it is seemingly very hard to make any money in this industry and with the current economic situation it is an uphill battle.
Starting in the new year we are planning to implement some deduction service charges and begin deducting from commissions, a % on Gift Certificate usage and New Client deductions to cover cost related to marketing and service charges from gift certificate companies. We are planning to deduct approximately 10% for the new client and/or gift certificate customer. It would be either/or, not both if customer was a new client and had a GC. Would you be so kind and have some advice on this matter. I look forward to hearing back from you.
Zoe
Zoe, I hope all is well with you. Thank you for your kind comments. In response to your comments:
First of all, the state laws are different. You might want to consider discussing your plans with the Texas Labor Commission or with an attorney that deals with Texas labor laws.
In most states you are not able to charge an employee to work. For example, in most states you cannot have an employee pay for the credit card charge if one of their clients that they receive a commission on charges the tip. As you most likely know, a tip is considered additional money given to the owner and then considered additional wages paid to the employee. This is the case even if the employee gets the tip directly.
Most of the salons and spas that I work with do not allow tips to be charged. Considering credit card charges are getting up to 3% and since credit card sales are becoming more prevalent, allowing credit card tips can really cut into your bottom line.
You must be careful charging a service charge. In California I know of two salons that faced legal proceedings because of the way that they handled the service charge. As I understand,they paid a commission and then after calculating the commission they deducted the service charge. Although I do not know the exact details, I believe that if they would have based the commission on the service after a reduction, they would not have been in violation of the California laws. I like your idea of a charge for certificates and new clients. I would imagine that it depends on how the compensation formula is worded.
Most labor problems happen after an employee leaves and then files suite. I hope that this was some help. I currently have a California client that is in mediation for $150,000 for wage issues. Her issue is that she did not have her people clock out for lunch, and in California you must give unpaid time off for lunch.
The laws are very complicated and really loaded on the side of employees. Check with the Texas Labor Commission to make sure that you are within the law. Their website is http://www.twc.state.tx.us/.
Larry Kopsa CPA
