Parasole Picks the Pockets of Its Servers

Blaming rising credit card fees, Parasole has begun skimming 2 percent of its servers’ credit card tips, reports City Pages. The local mega-group (Chino Latino, Manny’s, Burger Jones, among others) refused to comment on the policy, which may in effect trade a small cash bonus for a PR black eye and diminished staff morale. UPDATE: Kip Clayton of Parasole responds (response printed in full):

“Hi James …  I have no comment regarding how we compensate Parasole employees … It is our policy not to comment on employee compensation.

There is certainly a broader, hot topic within the restaurant  industry  

Restaurants in general are in a low margin, highly competitive business.  Most restaurants struggle to remain competitive  in the wake rapidly increasing direct costs such as rising food, labor & supply costs, bank card fees & transportation costs.

Given the increased usage of credit & debit cards there is a restaurant industry movement to pass all or a portion of  the credit or debit card fees on tips only (not the fees on the entire guest check) to the tipped employees.  For example if the guest tips in the amount of $10 on a $50 credit card transaction, the tipped employee would pay between 2 & 3%  or $0.20 ( Twenty cents) on their $10 tip.  See state statute 5200.0080 Gratuities & Tip Credits for background on the topic.”

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James Norton

James Norton is editor and co-founder of the Heavy Table. He is also the co-author of a book about Minnesota sandwiches and the people who eat them, the co-author of a book about Wisconsin’s master cheesemakers, and a daily video blogger for CHOW. His latest book is a guide to the food and restaurants of Minneapolis and St. Paul called the Food Lovers’ Guide to the Twin Cities. Norton has written about food for Culture: The Word on Cheese, Salon, Gastronomica, Popular Science, Saveur.com, Minnesota Monthly, and City Pages (as a weekly restaurant reviewer).

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37 Comments

  1. Is this that unusual? I know many hair salons don’t let you tip on credit card, and it’s for just this reason – to avoid the mess over who pays the fees.

    I don’t think this is that unheard of in the restaurant industry. It’s a helpful reminder to me that I should probably just tip in cash.

  2. Author

    Speaking personally: I’ve never heard of it before, and it strikes me as tacky to nth degree (along the lines of Newsies, if you’ve seen that flick.) I would definitely welcome input from servers out there defending or explaining it…

  3. Seems shady to me. I haven’t heard of other places doing this much less well known chains.

  4. I had never heard of this until today either. As a customer, I assume the full amount I choose to tip on the slip goes to the server.

    I may try to do more tipping in cash. I won’t comment for or against the boycott being discussed in various comments on the CityPages post since I’ve already got a long-running boycott of Parasole restaurants based on their crappy food and cheap atmosphere.

  5. Shady? Unusual? Try illegal:

    “No employer may require an employee to contribute or share a gratuity received by the employee with the employer or other employees or to contribute any or all of the gratuity to a fund or pool operated for the benefit of the employer or employees.”

    (see “CHAPTER 105–S.F.No. 1280An actrelating to employment; providing notice of sharing of gratuities and authorizing employers to safeguard and disburse shared gratuities;amending Minnesota Statutes 2010, section 177.24, subdivision 3.BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: Section 1. Minnesota Statutes 2010, section 177.24, subdivision 3″)

  6. You can see from the restaurant perspective – if a table pays $100 on food, $20 on tip; they pay $2 on the food, and $0.20 on the tip to the credit card. So 9% of their credit card fee costs go to a line item that brings them zero revenue.

    Bad PR, of course, that this got out. I’m genuinely curious about whether this is unusual. If it is – I suspect it won’t be unusual for long.

  7. Andy,
    What you have referenced is different from what is being discussed here. The charge to the restaurant to use a credit card can be passed through to the server. Parasole is not doing anything close to illegal. Usually a business that does $60 million plus a year in sales can afford a lawyer or two to make sure they don’t end up with a huge lawsuit.
    Now, is it tacky, sure. Legal, yep. Will it happen at more and more restaurants now that the almighty Parasole is doing it? No doubt.

  8. But the convenience of accepting credit cards is something the house offers, not the individual servers. And to offer that convenience, the house has to pay a percentage to the banks, stipulated in a contract. The servers have negotiated no such contract with the banks, nor do they have the choice of whether or not they will accept credit cards.

  9. Author

    Andy, really interesting perspective. I passed it over to Kip Clayton at Parasole for a response – if he’s not talking to City Pages about the policy, he may not answer your interesting comment either, but I thought it worth passing along.

    Jason, I sincerely admire your intellectual courage vis-a-vis defending this policy! And your question about whether it’s unique or general practice or somewhere in between is a relevant one. Of course if Andy’s correct about the law, that’s evidence that it may not be widespread.

  10. Uh, yeah. I’ll be tipping in cash from now on at all Parasole restaurants. I’m sorry, credit card fees are a cost of doing business. They are not an excuse to skim from the tip I choose to give to my waitperson.

  11. I mean the obvious thing is to just hammer Parasole, and if I ran a restaurant empire, I hope I wouldn’t be doing something like this. I’m just asking questions… it’s my thing.

  12. Waitress12310/03/2011Reply

    That’s a list of restaurants I’ll make sure to avoid.

  13. I’m w/ Jason on this one…doesn’t seem that big of a deal.

    If I were a professional server I’d be much more worried about the explosion of fast casual as a server less dining option.

  14. Then, logic concludes, that restaurants are able to nickel and dime diners to gluttonous death. If that’s how they want to run their business, so be it.

    Parasole has no right to append it to the tips their servers make. If they want to say it’s some generic “processing fee” or something, that’s another thing. I don’t care how good the food is. If the restaurant that my Mother has worked at for 32 years started doing this, I’d be pitching a fit. Again:

    “No employer may require an employee to contribute or share a gratuity received by the employee with the employer or other employees or to contribute any or all of the gratuity to a fund or pool operated for the benefit of the employer or employees.”

    It can’t be any clearer.

  15. The law is pretty clear Andy:
    “Where a tip is given by a customer through a credit or charge card, the full amount of tip must be allowed the direct service employee minus only the percentage deducted from the tip in the same ratio as the percentage deducted from the total bill by the service company.”

  16. Kevin Watterson10/03/2011Reply

    Wouldn’t this part of it be what Parasole is doing:
    “Where a tip is given by a customer through a credit or charge card, the full amount of tip must be allowed the direct service employee minus only the percentage deducted from the tip in the same ratio as the percentage deducted from the total bill by the service company.”

  17. The statute could not be more clear. It is illegal for Parasol to use any portion of a tip “for the benefit of the employer…”

    Parasol should find a new batch of high paid lawyers, if its current batch passed on this poor policy.

    Not to mention: credit card fees are OVERHEAD. You don’t ask your employees to pay overhead, you adjust your prices to cover the overhead.

    Stupid AND illegal.

  18. James,

    You really had to work in a “Newsies” reference, didn’t you?
    Well played.

    By the way, I’m starting a class-action lawsuit against Walt Disney Pictures for that fiasco. I’ll never get back those two hours of my life.

  19. i briefly hostessed at a local restaurant a couple years ago and they also subtracted the tip “fee” from credit card tips. not being in the industry, i had no idea, until reading the article today, that it was not a common practice.

  20. I’ve never, in my almost 20 years in the industry, worked anyplace that withholds tips to cover overhead. The comments on the Citypages article were pissing me off too much to keep reading them. Apparently, a lot of people think that it’s ok for a restaurant to charge employees for using their credit card machines to collect money for the restaurant. Should restaurants similarly be allowed to withhold pay to cover wear and tear on trays? It’s not as if the employees have the option of refusing to take credit cards; the restaurants allow patrons to pay by credit card and then charge employees for something over which the employees have no control! This may technically be legal per the administrative rule cited above, but it absolutely violates the intent of MN Statute 177.24. I’m looking forward to a statement on this topic from the Attorney General’s office clarifying the meaning of the rule.

  21. I have been working in restaurants for a better part of the past 7 years. This policy is not uncommon, and to boycott restaurants that have this policy hurts the servers more by the fact that they would get less business. If you want to get mad at someone get mad at credit card companies… it’s your money but they charge business to accept it digitally. Cash is the answer but many people find that so inconvenient, those “rewards” you get for using your card are funded by the fees that the card companies charge businesses to accept your money digitally.

  22. Jason, this is not common. Nolan, you’re working for the wrong restaurants if you think it is.

  23. I agree with Nolan 100%. Boycott Parasole and the hard working servers take that hit too. Credit card companies are the guilty party, as are all of us – myself included – who use reward cards for the rewards and convenience. I work in a retail industry and know how much the credit card fees can impact a bottom line. Maybe Parasole will use this as a learning opportunity and find a more equitable way to share those costs. But we as customers can’t complain when prices go up then…

  24. Grahampuba10/03/2011Reply

    Parasole obviously needs to pass this along to those servers. We wouldn’t want the billboards to be any less snarky and the tiles at their next three restaurants to be any less exquisite.
    I wonder if they would be implementing this if unemployment was under 6%.

  25. It’s a basic rule of statutory construction that a statute trumps a rule. To the extent there is a conflict between the two, the plain language of Minn. Stat. 177.24 controls over any administrative rule to the contrary.

    The obvious answer to this quandry is to pay servers a LIVING wage with BENEFITS. We could then do away with the whole sham “tip + minimum wage” system. Either way, it is dishonest if not larcenous for Parasol to force its servers to cover its overhead. Also: why would you want to piss off the people who present the face of your company to the public?

    I say again: Stupid AND illegal.

  26. “No employer may require an employee to contribute or share a gratuity received by the employee with the employer or other employees or to contribute any or all of the gratuity to a fund or pool operated for the benefit of the employer or employees.”

    I think the argument that Parasole’s legal team would make is that Parasole isn’t making the employees share or contribute part of the gratuity, because they never saw it; that is, Parasole is giving the employees 100% of the tip money that they received from the customer.

    Given that myriad research has shown that people tend to spend more with credit cards then they do when spending cash, it probably works out to the server’s advantage to accept credit… even if it means losing 2% off the top.

    All that said, I still think it’s a downright petty thing for a large and financially successful restaurant chain like Parasole to do. Not to mention it’s totally tacky and a terrible PR move. The tip garnishing thing is already the 3rd result on Google when you search for Parasole Restaurants. What were they thinking?!

  27. I agree that this is uncommon. I’ve worked in the industry about 5-6 years, and the only other company I know that does this is the other new heavy hitter in our town, Crave. Crave actually makes the server pay the entire fee for the swipe (from what I heard this can sometimes range up to a couple dollars, but that is hearsay). However, you also need to consider this. Servers are paid $7.25 an hour. We don’t get all of that, we have to claim the tips you put on your credit card because it leaves a paper trail. Most of us full time servers work around 70 hours a pay period and take home less than $150 a check. So, after paying taxes on all those tips, it’s more like $2 an hour. I’m not complaining, I like my job quite a bit. But I do want more people to understand exactly how it all works.

  28. Sorry, quick follow up. I believe that law more pertains to the fact that a company cannot force you to tip out (share) your tips with other people you work with. Which is crazy, because while we are not “forced” to tip out. If I didn’t tip out my bartender she wouldn’t make me drinks, and if I didn’t tip out my busser, I would be left with dirty tables. I would also probably get talked to by my boss. At some places, you also tip out a hostess, a food expeditor, and possibly a doorman. Sorry guys, like I said. I’m not complaining. I work hard, but a lot of you people out there make my day great.

  29. Adam Platt10/04/2011Reply

    I think what is being lost in this is that Parasole servers are losing a perk, not being stolen from. Up until now, the company covered the percentage fees credit card companies take off the top of the entire amount of a bill, including the tip. Parasole was in essence returning that 2-3% of the tip to the server. Now they are saying to the server: You must cover the processing fee on your tips if the customer chooses to tip with a credit card. Parasole never sees this money. They derive no benefit from it. They’re just no longer willing to subsidize the fees.

    Employees may decide to look elsewhere for work. There are lots of serving jobs in town. But how many employers offer health benefits for even part time employees? How many offer free employee meals? This policy change will cost a Burger Jones server roughly $1-2/night. A Manny’s server perhaps 10x as much.

    The web promotes righteous indignation about as well as anything. Parasole’s policy shift is hardly something worthy of a boycott–an overreaction rooted either in ignorance or out and out dilletantism.

  30. Charles,

    You are applying taxes taken out of your tips to your take-home wage. Isn’t that a little misleading?

  31. Kevin, I don’t completely understand what you’re asking? For my clarification, taxes on my tips are taken out of my take home. I’m not trying to be misleading, just trying to inform everyone. I know a lot of people that I tell don’t understand how small our paychecks are. Tips are basically all we are getting.

  32. Kristine Wyant10/06/2011Reply

    I spoke with the marketing director at Parasole today. He said that, on average, customers who pay by credit card spend 25% more than those paying in cash. So Parasole is selling 25% more to those customers, AND taking 2% in servers” tips? Outrageous.

  33. John Minn10/07/2011Reply

    Why is all that rage directed at the restaurant – why not at Visa or Amex? Why isn’t everybody equally outraged about the CC companies charging the restaurant 2% of their food revenues? If you want to boycott somebody boycott the credit card companies that skim 2% of everything that is sold in this country.

    Remember those commercials where this guy brings everything to a halt because he uses cash? Well, the only thing he brings to a halt is the skimming. Use cash, no skimming (and easier tax returns ;-))

  34. I have been in the restaurant business for 10 years and only worked one place that takes money out…
    Any server getting paid $6 or more an hour has no room to complain but the federal minimum wage for restaurant servers is $3.18 last I saw… Everywhere I worked I get zero dollar paychecks then owe money at the end of the year in taxes because the $3 doesn’t cover it… So then I’d have a problem with paying for it.

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