If your employer is deducting a high percentage of your wages to cover credit card processing fees, seek legal advice and talk with your manager to make sure this practice is legal in your state and the amount you are being deducted is fair.
Dear Your Business Credit,
Is my employer allowed to deduct their credit card processing fee of 5.5 percent from my total sales?
I’m a hairstylist so I go off of sales and commission. My commission is 45 percent of my total service sales, but after they take out the 5.5 percent merchant fee my commission drops to 39.5 percent. They do give me my tips daily in cash and they are not deducted. – Meagan
The credit card processing fee your boss is deducting sounds extremely high, so something seems to be amiss here. The average credit card processing fee is 2 percent.
Robert Livingstone, president of IdealCost.com, a national credit card processing fee consultancy, told me in an email that “5.5 percent is very high for credit card processing fees for this type of business. Even a high-end salon receiving the most exclusive rewards, credit cards shouldn’t be paying any more than 3 percent to 3.5 percent.”
See related: Taking credit card fees out of employees’ tips
Can employer deduct merchant fees from workers’ wages?
You might ask your boss if he is lumping in other costs, along with the fee and, if so, what fees and why? He may be paying outrageous processing fees under his merchant processing contract, but it is also possible he is either misunderstanding what the swipe fees are or deliberately cheating you.
As to whether your boss can deduct the merchant fee, I received input from Jesse Harrison, founder and CEO of the California Labor Law Employment Attorneys Group, an employment law firm.
You didn’t tell me your state in your note and I didn’t hear back when I inquired about where you are located, so this will be a general answer to get you pointed in the right direction.
“There is no federal law that dictates how an employer can deduct fees from workers’ wages,” Harrison said in an email. “Each state, therefore, sets its own laws, but only 12 states have laws outlawing or allowing it. The majority of states do not address the issue. In California, you cannot deduct any credit card processing fees from the worker’s wages. The same is true in Massachusetts and Maine. However, Utah, Minnesota, North Carolina, New York and Vermont all allow employers to deduct the fees.”
Deducting fees from tips vs. deducting fees from wages
Harrison said the deductions that are legal only pertain to tips, and not sales. Customers determine gratuities, except in some situations where automatic gratuities are added, such as for large parties in restaurants, she said.
“A hairstylist may get tipped, and the tipped amount is what can be deducted from, but not the total wages,” she explained. “It’s important to verify state laws to determine if the practice is outlawed in the state.”
For further clarity, I would recommend you contact your state attorney general’s office to ask what the laws are in your state. Here is a list that offers contact info for the attorney general’s office in each state.
You don’t have to give the attorney general your company’s name to get information, so it’s worth a call to know where you stand. Good luck!