Pitting the salon with iffy credit card policies

Hubby and I both go to the same hair stylist because she’s awesome. The salon she currently works for has implemented a stupid credit card policy. I can’t believe it makes any sense, but am happy if someone wants to educate me.

So they used to work like other salons in that they would happily run your credit card for the service price plus tip, hand you the tip amount in cash which you’d then go hand to your stylist. (I actually think that’s stupid also, why can’t they handle tips the same way restaurants do?)

Last month they changed their policy to be even stupider. I forgot about it when I had my hair done yesterday, and ended up having to “stiff” my terrific stylist, for which I apologized to her and promised to tip her twice next time. So lame. The new policy is that they will NOT add tips to the credit card charges. Period, no exceptions. You have to bring cash or write your stylist a check for the tip. When I got caught out yesterday (AFTER the service was rendered, of course) I asked the receptionist for the reason for this new policy and she said she thought it had something to do with the merchant fees. Bullshit. So the merchant fees when a tip is added are too much but they’re just fine on the basic service? Wot?

I don’t get it. How come they are happy to accept credit cards for the basic service but can’t include the tip on the amount?

I’m guessing they don’t want to give the stylists the full amount tip because it cost them 3% to process that tip, and they are not going to eat that. And they don’t want to take the time to remove the 3% from the tip and make change. And maybe the stylists feel like they shouldn’t have to be responsible for the 3% merchant charge so someone just said “FINE! NO CREDIT CARD TIPS!”

Which ends up sucking for the stylists, because people don’t have cash.

Math: Say it cost $30 for a haircut and you give a $6 tip. The salon has to pay, in fees, 90 cents for the haircut and 18 cents for the tip. They do not want to eat the 18 cents and they do not want to give the stylist $5.82 because that would maybe cost them more than 18 cents in overhead. So, new annoying policy.

If the merchant passes the credit charge processing fee on to the employee (which is legal in most states, though not in a lot of western states), it has to clearly notify the customer that it’s doing so. So my guess is that the salon doesn’t want to eat the fee or tell you it’s stiffing its stylists. I don’t understand why they would hand you cash either. I get haircuts at Great Clips and Hair Cuttery and both allow me to add a tip on the credit card receipt without making me hand the stylist cash.

I’ve noticed that the chains like Great Clips let you add the tip to the receipt. It’s the smaller businesses which can’t afford to do so; ergo, you have to have the cash already on you to pay the tip.

I ran into the OP’s issue the first time I went to what’s now “my” nail salon for a pedicure. It’s a family-run salon. I have no idea how much they gross annually, but I’m betting that, like most small businesses, eating that fee would put a serious dent into that gross.

Anyone who refers to his or her spouse as “Hubby” deserves much worse than credit card annoyances.

I run a business that accepts tips.

First, tips are charged at a higher rate than the base charge, it varies depending on card, but is usually about half a percent higher.

Second, you also have to pay payroll taxes on the tips, which in my case is another 10.69% (this is ss, medicare, unemployment, and workers’s comp) as well as matching retirement benefits, which brings it to around 12%.

So the salon is actually paying around 15% to give that tip to the employee. According to my lawyer, you are not allowed to take that any of that 15% out of their tip, but just have to eat the cost.

(The movie where the guy gives the waitress a million dollar tip always annoyed me, it would have bankrupted the diner.)

If you do not mind that both sides are evading taxes, it also saves the employee 7.5% on payroll taxes, plus their marginal rate on the income tax, (as much as another 25%).

Technically, you giving money to another private citizen has nothing to do with the business, if the business doesn’t touch it. It would be up to the employee to declare appropriate taxes on the “gift”. It’s a bit sketchy, but it may be legal.

I take tips on credit card, and cash tips are added to the ticket. All tips are paid out on the employees paycheck. My understanding is that most of my competitors are less scrupulous about following tax and labor law. It costs me more, but I feel it is worth it from the morale standpoint of my employees, as well as not annoying clients with inconvenient policies.

Their last policy may have run afoul of the CC merchant agreement as they are not suppose to hand you cash, as that is basically a cash advance. It also is problematic if the charges are reversed, and perhaps that’s why the old system came to a end (person dissatisfied with the service but tipped called credit card company to get refunded, and explained the tipping policy). It sounds like they are playing strictly by the rules, which does hint that they were caught and contacted about it.

As for why no standard tipping model, IDK, possibly because it’s more expensive to have that option, more paperwork, more accounting for who gets what tip that they simply don’t want to deal with.

Well, it beats “Shithead”.

…That’s Capt. shithead to you, my lovely wife.

Thank you, that first part is what I was missing. Is this true for the restaurant situation also? (receipt shows food subtotal, tax, tip the customer writes in, and finally total) Why would it be a problem for a salon and not a small diner, then?

Your point about payroll taxes is true in either case, unless as you later point out maybe they’ve arranged it so that the customer tipping is a quiet, person to person interaction they can tell the IRS has nothing to do with the business. Still shady.

I wonder how long it will take all of their best stylists to get sick of being shafted (when customers like myself forget to bring cash or check) and leave for greener pastures…?

Edited to add another thought: back on your second point, if the stylists are working on a 1099 contractor basis, none of that applies. I don’t know for sure if they do, but I have heard that in some cases the stylist has to pay rent for her “station” and I think that sounds like a contracting situation. An employee wouldn’t have to pay rent.

Gifts are usually not taxable income. But we made a special rule about tips because everyone understood that tips were part of the compensation earned for some jobs.

We COULD have applied the same common sense to recognize that the carried interest income paid to hedge fund managers were also compensation but apparently hedge fund managers have better tax lawyers and lobbyists than waitresses and hair stylists.

So in a nutshell–you’re too shortsighted to carry even a few dollars in cash, so you blame somebody else for acting in a way that exposes your stupidity.

Would you like some cheese to go with that whine?

Sheesh, who peed in your Cheerios?

For the record, I did have two dollars in my purse. I opted not to insult my stylist with a 4% tip. I’m blaming the shop for implementing stupid and shady - and nonstandard - policies that result in embarrassing situations for their customers and workers.

Based on your sourpuss reaction, you must run the salon.

It’s not shortsighted to be left short when a place that didn’t require cash suddenly changes its policy, grandpa.

I’m not a big fan of the term either, but nice threadshitting there.

What Really Not All That Bright said. This is asinine.

I often like to pay tips in cash, if i have cash in my wallet. There are times, however, that i don’t have cash. In those cases, if i’m going to a business where i usually tip, and where they accept tips via credit card, i feel no particular obligation to go out of my way to withdraw cash.

If they have changed their policy since my last visit, and haven’t told me, it’s not exactly my fault if i turn up without the necessary cash for a tip, and it hardly constitutes laziness.

On the more general point of tips and credit cards, it’s my opinion that any business owner who takes credit cards, and who is in an industry where tips are standard practice, needs to accept tips on credit card slips, and needs to factor the cost of handling credit card tips into their overall business plan. For salons, that might include factoring the cost into chair rentals, if that’s how the particular salon works with its hairdressers.

In the dim distant past, when credit cards constituted some exotic form of payment, practiced by a minority of consumers, it might have been reasonable to have different practices for credit card and cash purchases, and to ask individual credit card users to eat the costs of processing their transactions.

But those days, for better or worse, are far behind us. In the modern world, they are essentially a standard form of payment. Merchants have an absolute right not to accept credit cards. They might decide that the cost and/or inconvenience of accepting cards won’t outweigh any extra business they might get. But if they want to benefit from the extra business that they can get by accepting credit cards, then they should be willing to accept that the extra business might bring with it some extra costs, and factor those into the overall business plan.

This is why.

While the salon I go to does allow you to put your tip on a card, my stylist has specifically asked for us to tip in cash or by check, due to the fees that get taken out and the amount of time it takes for the remaining tip money to come back to her.

It appears I was lied to years ago. It was my understanding that tips were not subject to the credit card fees. I rarely carry cash, so now I may need to rethink how I tip at my favorite local café - I don’t want the server to be shorted, nor do I want the owner to have to eat that fee on the tip.

Glad I tend to be generous when I tip - hope that makes up for the fees…

My heartfelt apologies.

Again, depends on the state. But in Florida and Maryland they are (though employers do not have to pass the cost on to the employee if they don’t want to).

I’m still not seeing why this is a problem for salons and not small restaurants. Maybe it’s the same, but I can easily say that I’ve never paid a restaurant tab on my credit card and been handed back cash with the expectation that I hand it to the server.

You can also ask/suggest your stylist has/gets Square or some other way to accept tips via credit card. They might already do this.