The odds are you might have seen credit card surcharges while shopping. Maybe you saw a vending machine that charges extra money on credit card purchases instead of cash-based ones.
You may also notice that some businesses might request tips for their employees. You can add a tip that goes after a surcharge appears.
You might consider credit card surcharging when planning your small business operations. You could also request tips for your employees if you work in an industry where employees often work for tips. But you should know how credit card surcharging with tips works before committing to this point.
The surcharging process ensures you can cover the charges a credit card processor will levy on your transactions. But you should also review the rules surrounding how these charges can work.
Understanding the Concept
A business can choose to add a credit card surcharge to a purchase. The surcharge can be a percentage of the total bill.
Businesses often incorporate surcharges to cover credit card processing fees. These fees can add up and eat away at a business’ revenues. Therefore, a company can add a credit card surcharge to ensure it can continue earning revenue. The surcharge essentially passes the processing fees on to the customer.
The customer will receive a bill that features the initial purchase price and the surcharge added to the total. The customer can add a tip to the bill if desired. The merchant will pay the tip to the employee minus the surcharge.
Here’s an example of how this might work at your business:
- A cardholder makes a $200 purchase.
- You can add a 5 percent surcharge, adding $10 to the order. The cardholder will now pay $210.
- The cardholder can add a $15 tip to the purchase, producing a final charge of $225.
- You will take the $15 tip and remove the 5 percent surcharge from the tip value. The employee would receive a tip of $14.25.
- You’ll also draw back the $10 surcharge. The $10 will go towards covering the credit card processing fees you will spend.
The total deposit you’ll get in this example will be worth $214.25. You will earn the $200 for the initial purchase, and you can move the remaining $14.25 to the employee who will receive the tip.
The general process ensures you’ll save more money on the transaction. You will ensure you have the funds you need for business operations, but you will also cover the surcharges a credit card processing team will collect.
No Need To Significantly Inhibit Tips
Your employees won’t lose money from their tips when you use credit card surcharges on your transactions. The Fair Labor Standards Act says that when a customer pays a tip on a credit card transaction and you pay part of your sale as a processing fee, you can take that percentage out of a tip. Therefore, if the processing fee was 6 percent of the transaction, you could remove 6 percent of the tip from the bill to cover the charge.
The effort ensures the fee being passed on to the customers won’t be passed on to the employees. The employees will continue to collect money from their tips, but they will get it after the processing fee goes forward. The employee’s tips will be added to one’s regular paycheck based on whatever you collect from your customers, ensuring everyone will have the funds they need.
Covering Interchange Fees
The main reason for adding credit card surcharges is because interchange fees have become increasingly expensive in the past few years. Visa and MasterCard have doubled their interchange fees over the past decade. The issue has caused some businesses to stop accepting credit card payments. Others are raising the prices of their products or services to cover these increasing charges.
Credit card surcharges are the latest trends to see surrounding covering interchange fees. Surcharges add an extra expense to customers who pay with their cards, but they will not apply for those who pay for things with cash. The effort ensures you can keep the prices down on things, although it could also encourage people to pay for things with cash. Either way, giving customers the option to pay for things with cash to avoid such surcharges may be the way to go, especially since you’re giving people a choice for what they can do.
Could Customers Give Lower Tips?
Customers might be alarmed when they see there’s a credit card surcharge on their purchases. They might give lower tips to employees to offset the extra total they are paying. But this is part of human nature, as people are often willing to adjust their spending and tipping habits based on the perceived values towards the things they purchase. Be aware of this point when looking at how your customers will treat your business and how they will spend their money with you.
Are Surcharges Legal?
The last point to see about credit card surcharges with tips involves whether it is legal for you to add these surcharges. There have been some anti-surcharging laws in some states, but many states like Florida and California have either overturned their anti-surcharging laws or have allowed surcharges in some forms. State governments are becoming increasingly comfortable allowing businesses to add these surcharges, especially as credit card networks remain aggressive.
Check Your Card Networks
Take a look at the card networks you utilize and see what charges they impose on your transactions. You can plan your credit card surcharges based on what you are spending for the privilege to accept these cards when managing all these transactions.
Don’t worry about whether your employees’ tips will be negatively impacted by these surcharges. You can use the surcharge system to calculate how much your employees will earn in tips and reimburse them through there. You won’t force your workers into taking substantially fewer tips because of these surcharges, ensuring everyone receives the help they deserve.