Can employer deduct card transaction fees from my commission?

To Her Credit with Sally Herigstad

Sally Herigstad is a certified public accountant and the author of “Help! I Can't Pay My Bills: Surviving a Financial Crisis.” She writes “To Her Credit,” a weekly reader Q&A column about issues involving women and credit, for CreditCards.com. She also has written for MSN Money and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Is my employer legally allowed to deduct 3 percent of my total credit card sales from my commission check?

An employer is generally fine as long as he pays the commission he promised to pay in your contract. He can’t change the rules of the game in his favor after you make the sale.
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Dear To Her Credit,
I need to know if my employer is legally allowed to deduct 3 percent of my total credit card sales from my commission check in the state of Florida? Not 3 percent of my tips, but on the sales of his product. He says the credit card company charges him a 6 percent per transaction fee, so he split it with us. I think this is illegal. – Marina

Dear Marina,
To begin with, a 6 percent credit card processing fee seems really high. Credit card swipe fees average between 2 and 4 percent, according to the National Retail Federation, so unless your employer is in a high-risk business (where fees can go higher), I'm having a hard time understanding why your employer is being charged 6 percent. I would ask for proof that your employer is truly paying that amount.

Deducting 50 percent of the credit card fees on a sale directly from your commission also seems a bit illogical to me, as an accountant. Say you get a 10 percent commission on a $100 sale, or $10. If you pay half the credit card fees, that’s 3 percent, which comes to $3. You’d lose 30 percent of your commission to credit card fees and earn a $7 commission. Ouch!

It would make more sense for your employer to deduct the total 6 percent fee from the sales total before he calculates your commission. For example, your commission on a $100 sale would first be reduced by the $6 credit card fee, or $94. Then your 10 percent commission on $94 would be calculated as $9.40.

If your employer only deducted 3 percent from the sales amount before calculating your commission on a $100 sale, you would receive $9.70 ($97 x 10 percent commission). I suspect this may be what he is actually doing. You should be able to tell by looking at your commission check whether your employer is deducting the credit card fees from your credit card sales amount, or directly from your commission.

Tip income rules are different

Deducting credit card fees from tip income is an entirely different issue. Tip income is money that goes directly to you, or divided up between you and other staff members. Therefore, I can see the logic to not expecting the employer to pay the credit card fees on tip income.

Say a generous patron left you a $100 tip, perhaps after a big party, and put it on a credit card. It could cost your employer 6 percent, or $6, to turn that credit card tip into cash and give it to you. In most states, employers can deduct the credit card processing fee from your tip income, and give you the net amount actually received – in this example, you would receive $94 ($100 – $6).

This reduction cannot reduce the employee’s wage to below minimum wage, however. (California is a notable exception. In California, employers must pay the full amount of the tip, regardless of credit card fees.)

Refer to your contract ... if you have one

When it comes to calculating commission checks for sales of products, the most important thing is what your contract said when you signed up to work on commission. Employers can devise all kinds of ways to determine commission payments, such as paying at different rates for different levels of sales, varying rates for different groups of products, special bonus commissions in some circumstances, and so on.

An employer is generally fine as long as he pays at least as much in commission as he promised to pay in your contract. He can’t change the rules of the game in his favor after you make the sale. Sometimes salespeople sign up for commission-based pay without really understanding how the commission will be determined.

It’s hard to believe, but some salespeople don’t even have a written contract – just a verbal promise that they’ll get a commission percentage. Before you invest any time trying to sell products for a company, make sure you have a written contract, and that you know exactly how you will be paid.

It’s the only way to make sure you are not disappointed when you receive your commission, or to make sure you can argue your case if your commission is not what you expect.

See related: Tipping your waiter? Ditch the card, pay with cash, Poll reveals who are the best, worst tippers


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Updated: 09-21-2018