Tipping with rewards

Factual Questions
1

I’m pretty sure I earn cash back when I use a credit card to tip service. For instance, my Amex gives 3% cash back for dining purposes. If I give a substantial (or any) tip, I get 3% cash back on that, right?

So if I pay a $20 tip, I get $0.60 of it back. May not sound like much, just interesting to know that the restaurant gets charged money to give me a reimbursement, and they’re only accepting my tip to give it to the server, right?

What are the laws behind this? Does the restaurant get to dock the server that 3%?

2

I don’t understand your question. How is the cashback from the tip any different from cashback from any other paid-for service or product? The cashback is something the credit card company gives you out of their own money; it’s not like the restaurant is charged 3% more.

3

How do you suppose the credit card company stays in business? Or why some gas stations used to give a small discount for using cash instead of a credit card?

Each credit card transaction involves a small fee charged by the credit card company to the merchant (or in this case, the restaurant).

I think the OP is comparing how much the server receives when the tip is paid in cash vs. when the tip is paid with a credit card.

I was curious about this once and asked my hair stylist if she gets the full tip even if I put that tip on a credit card. She said they did. (In fact, I often observed them pulling the tip directly from the register after a customer pays)

4

Yes, my question is about the restaurant acting as the go-between … they charge my car $20 for a tip, but they only get $19.40. Then they give the server how much of that? $20 (thereby, the restaurant eating $0.60) or $19.40 (thereby docking the server that $0.60)?

On a per-transaction basis, this isn’t a lot, but if a good amount of customers pay with credit card, this could be a huge chunk of cash over the course of a day or a week. Who bears that cost?

5

Credit card fees are about 1.75% I think, depending on which type of card it is. Why do you think the bank docks the merchant for your purchases?

6

Still missing the question…

Who is shouldering the burden of these charges in most places? The server or the restaurant, some combination, does it wildly vary?

I don’t shoulder the burden of paying for it - I get rewarded.
The credit card isn’t shouldering a burden - they’re earning money on this transaction.
The restaurant or the server must then shoulder it. I’m trying to figure out how that arrangement works.

7

The server gets tipped what you put on the “tip” line.

If your total is $20, and you tip $5 for a total of $25 charged to you, then…

The restaurant receives 25 from AmEx. The restaurant pays AmEx .31 (or more, or less, depending on their agreement) as a transaction fee.
The restaurant pays the server $5.

AmEx receives .31 from the restaurant for that particular transaction. AmEx gives you .75 as a reward credit to your account.

8

The credit card company shoulders the burden. If the restaurant charges you $20, then the restaurant receives $20 from you - regardless of how much cash back you get from the credit card company.

9

What’s often missed in these discussions of credit card costs is that taking payments in cash is not without costs, either.

It costs money to have someone make a bank run to ensure that there’s change in the till. It costs money by increasing your risk of robbery, or by increasing your insurance premiums to pay for that increase, or to install a safe to decrease that risk. It costs money to pay someone to count out the till and even the accounts, etc.

Similarly, checks carry a risk of fees when the account is overdrawn, and some of the above risks as well.

Yes, credit cards cost the business some money to take payments, but it’s not like other payment methods are completely free.

10

Everyone is still missing the question.

hobscrk777, the credit card company does not shoulder the burden - they charge a charge to the restaurant for running the charge, as atomicbadgerrace points out in the post before yours.

atomicbadgerrace, you are saying that the restaurant shoulders the burden of this for getting my money to the server. If the TIPS (not the TOTALS) for the entire day turn out to be $500.00, then the restaurant has to pay a percentage of that (probably 3% to 5%) to the credit card company for running the charge.

If they then pay $500.00 worth of tips out to the employees, they lose $25 for the day, right? So they are shouldering that cost in order to make sure their employees receive a full tip?

Is my question more clear now?

11

Credit card fees (known as a discount rate) can run up to 5%, depending on the card issuer, card type, and the merchant bank. Amex is notorious for charging a higher discount rate, although since other banks have begun issuing Amex cards it has gone down somewhat.

Rewards cards (such as the one OP is using) and p-cards (purchasing cards) will generally incur an extra .50%-1.5% discount rate.

Not quite. The merchant bank and the issuing bank both get a cut. Once upon a time, Amex might have kept the whole chunk, but now that non-Amex banks are issuing Amex cards that has changed.

As noted before, this is 100% incorrect. The restaurant does not receive the $20, the restaurant receives $20 minus whatever the discount rate is.

I do not believe it would be legal for the restaurant to force the server to eat the credit card charge, since the tip is considered a wage. Legal issues aside, the record keeping necessary to figure out exactly how much to discount the tips for, waiting until the billing summary came along and number crunching the card types and issuers and corresponding discounts.

12

Wait, you’re saying that if I pay with a cashback card, the restaurant – not Amex or Visa – will be paying for that?

13

Once, while I used to wait on pool tables, I was serving 2 men and a pretty woman. Shooting pool, nibbling apps and many drinks.

As the night drew on, I kept looking at the pretty lady and was trying to figure out who was the partner and who was the third wheel. Soon after yet another round of shooters one of the guys pulled me aside and mentioned that theirs was an open relationship and she was basically dating both of the men.

The secret was out. The woman began to flirt with me shamelessly as the men enjoyed watching her toy with the waiter. At the end of the night, after one of the men paid their tab, the lady stuck a $50 in between her breasts and said ‘here’s your tip. Just take it.’ She then firmly grabbed both of my wrists and looked at me in that way.

Honestly, I was trying to be polite, and just wanted to ::ahem:: peek my mouth in the general area to get the money, but then she let go of my wrists and gave me a very generous pectoral facewash.

What? That’s not a reward?

14

Apparently I stand corrected. I still think there’s some confusion in this thread (or at least there is on my end) over the difference between the credit card company charging the merchant for the privilege of using their card and charging the merchant to recoup bonuses.

I’m well aware that Visa et al charge the merchant a small percentage (or perhaps a flat fee) for using any of their cards, whether it has rewards or not. What I seem to be reading is that the merchant is charged an additional fee when someone who has a rewards Visa uses that card. Is this correct? It seems that the merchant would pay the same fee regardless of what kind of card someone uses (assuming they’re both in the same family of Visa, Mastercard, or some other) and that the credit card company would disburse the reward out of their own profits.

15

Restaurants are charged the same fee regardless of whether it’s a rewards card or not. The fee is negotiated between the merchant and the issuer/the issuer’s bank for all VISAs or all MasterCards or all AmExes. If the restaurant is paying out 3% to be able to accept the card, but you get 5% rewards cashback, then clearly the restaurant is paying less than you’re getting. That only leaves the card issuer to eat the cashback; whether from its profits, or more likely, from its partnership deals.

16

…we’re getting closer, not QUITE there yet though

hobscrk777, I’m not concerned with whether or not the restaurant pays more of a surcharge for accepting a rewards card than a non-rewards card. I would assume they are fairly similar, although they probably pay more for CCs that aren’t Visa/MC. That’s not my point

My point is that they pay SOME form of surcharge. So when they run their day’s totals, let’s just say there’s $1,000 in tips for the day. Let’s just said their average surcharge for charging those tips is 4%. 4% of $1,000 is $40, right?

So, the restaurant, who pays a surcharge for accepting money through a credit card, has now accepted $960 in tip money. It must then pay $1,000 in tip money to the wait staff, right?

My point is that the $40 came from somewhere. It certainly didn’t come from me (I’m rewarded with it). It didn’t come from the cc company (they charge that charge to the restaurant). So it either has to come from the restaurant or the server, right?

I hope I’m being more clear.

It seems as though IAmNotSpartacus is the closest to understanding my issue. And his response says he does not “believe” that it would be legal. So, from the person who most closely understands the question, we have a belief/strong suspicion about it.

Has anyone here managed a restaurant, or worked as a server, or knows anyone who’s done these things, or work for a credit card processing company, or is a lawyer, and might know the answer to this question, now that the understanding of the question is hopefully becoming clearer?

17

I think the question has been pretty well answered, and you’re answering it yourself now.

Yes, the restaurant pays a percentage of the charged tip as a fee to the card company. If it accepts $1,000 in tip money and has a 4% fee, then it would receive $960 net in payments. Then, it pays back out $1,000 in tips. As stated upthread, the server receives all of what is on the “tip” line. I’ve never encountered a situation where this is not the case (tipshare and such notwithstanding). Ergo, the restaurant absorbs that $40 as a cost of doing business.

18

The answer really, really is as simple as that. The restaurants eats it. But you can make the answer more complicated, too: you, the purchaser, pay for it. It’s just not direct any more. After all, all of the restaurant’s expenses are figured for in the cost of whatever it is that they’re selling you. Say a $10,000 credit card sales day, yielding $1500 in tips charged. That $45 of “lost” money will be recuperated somehow; maybe your fish and chips costs $12.99 instead of $12.98.

19

Ok, now that the main question has been answered, what about the rewards one? Do restaurants pay for the additional reward or do the credit card companies eat it?

20

Reply, I think it has to do with the merchant account the merchant has. Some merchant accounts charge a flat rate across the board, others charge a different rate depending on the type of card. Some MAs only take some types of cards, and you have to sign up a MA directly with another carrier (such as AmEx or Discover), but some MAs will handle all credit cards.

So as far as who pays for your reward, it’s generally the restaurant. It’s whether they pay a higher average fee, or a higher fee for this card/lower fee for that card … it all comes out in the wash.