Withholding Credit Card Fees from Tips Is Unlawful in Delaware

WILMINGTON, Del. (Jan. 31, 2025) — The Delaware Department of Labor (DOL) recently investigated the practice of withholding a percentage of servers’ tips for credit card processing fees, in response to multiple inquiries and complaints. Following this investigation and subsequent legal review, the illegality of such practices was confirmed.

The state of Delaware has determined that this practice is illegal under Title 19, Chapter 9, Section 902(d) of the Delaware Code. This section explicitly states, “Any gratuity received by an employee, indicated on any receipt as a gratuity, or deposited in or about a place of business for direct services rendered by an employee is the sole property of the primary direct service employee and may not be taken or retained by the employer except as required by state or federal law” (emphasis added).

In addition, the Wage Payment and Collection Act, Chapter 11, Section 1107, provides instances in which employers may withhold or divert any portion of employees’ wages, but it does not permit employers from diverting credit card processing fees from employees’ wages, including gratuities. Any agreements to the contrary are void as a matter of public policy.

The DOL reminds all Delaware restaurant operators and businesses with tipped employees that deducting credit card processing fees from employees’ tips is prohibited. Delaware law ensures that employees receive the full benefit of their fully earned tips, without bearing the costs associated with credit card transactions.

“The vast majority of servers rely on tips as their primary compensation. With the cost of living on the rise, those funds matter more than ever,” said Delaware Attorney General Kathleen Jennings. “Employers who ask servers and bartenders to foot the bill for merchant fees and other business expenses are undermining their employees’ livelihood and violating Delaware’s labor laws. We want restaurants and other Delaware employers to thrive — but we also expect them to adhere to laws that guarantee fair treatment and proper compensation for their employees. I’m grateful to the Department of Labor for its investigation, and for the advocacy of people like state Rep. Kim Williams and former state Sen. Karen Peterson, who have stood up for Delaware’s service workers.”

The DOL encourages all employers to review their current payroll and tipping practices to ensure compliance with Delaware’s labor laws. For additional guidance, please visit our FAQ page: https://labor.delaware.gov/divisions/industrial-affairs/wage-hour/.

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