When employees' tips are included on credit card payments, an employer may deduct an average standard composite amount for tip liquidation, rather than individually calculating the precise charge for each transaction, so long as the total amount collected reasonably reimburses the employer for no more than the total amounts charged by the credit card companies attributable to liquidating credit card tips.

The employer's deduction from tips for the cost imposed by the credit card company reflects a charge by an entity outside the relationship of employer and tipped employee. However, the other costs that you want the tipped employees to bear must be considered the normal administrative costs of restaurant operations.

For example, time spent by servers processing credit card sales represents an activity that generates revenue for the restaurant, not an activity primarily associated with collecting tips. Likewise, the time spent in other activities represents merely the reasonably incurred administrative costs of a restaurant that chooses to accept credit card payments. Moreover, the cost of dedicated phone lines and the time spent processing the transactions are the same whether or not a tip is included on the bill.

An employer may deduct an average standard composite amount for tip liquidation, rather than individually calculating the precise charge for each transaction, so long as the total amount collected reasonably reimburses the employer for no more than the total amounts charged by the credit card companies attributable to liquidating credit card tips. Any employer attempt to deduct an average standard composite amount for tip liquidation that exceeds such expenditures is not acceptable. Accordingly, an employer may not include other administrative expenses to the average credit card fee.