Tomorrow Philadelphia’s City Council will vote on Bill #110341, better known as the Gratuity Protection Bill. If passed the legislation, which was introduced earlier this month by Councilman at Large, James Kenney, will prohibit business owners from taking fees out of tips left by patrons for their servers to cover credit card transaction fees. It already passed out of City Council’s Rules Committee and is expected to be signed into law by Mayor Michael Nutter. “The economy is awful, wages are low, and people are tired of being nickel and dimed,” Andrea Lemoins, coordinator with the non-profit organization Philly Restaurant Opportunities Center (ROC), who supported and assisted Kenney and his staff as they put the bill together, told Grub Street. “It’s an issue that’s very important to our members.”
Sarah Sachdev, Director of Legislative Affairs for Kenney’s office said the Councilman, who worked in restaurants before starting his career in politics, was dismayed when he learned earlier this year that a percentage of the tips he was leaving for servers at restaurants was being deducted to cover credit card transaction fees.
“The Councilman believes that for the restaurant it’s a cost of doing business,” Sachdev said. “It’s their choice whether or not they decide to accept credit cards. It’s not the servers choice.”
According to a letter Stephen Starr sent to Kenney’s office, Mayor Nutter and all of City Council expressing a “strong opposition” to the bill, many of the concerns that led to its introduction are based on what he calls misperceptions about the industry.
Starr wrote that many assume restaurants deduct one hundred percent of the processing fee charged to the restaurant on the entire check, including food, beverage, tax and tip. He explained that in reality, the only processing fees that his restaurants deduct from servers is 2.25 percent from the gratuity only, and not the entire guest check.
In the letter he goes on to cite a study conducted by the Internal Revenue Service that found that when customers pay their checks with credit cards, they tend to leave a more generous tip, as much as 2 to 3 percent more than those who pay with cash. So even with a percentage of the transaction fee deducted from their gratuities, he argues, servers at his restaurants come out ahead when checks are paid by credit card.
While Starr, who created 350 new jobs in Philadelphia this year and employs more than 1,800 people throughout the city, makes a good case for his own business practices, Sachdev argues that many other restaurateurs and business owners aren’t quite as fair.
“It’s not an industry-wide practice,” she said. “Some restaurants do have this practice and some do not.”
As much as the bill is about protecting restaurant workers and others whose livelihood is dependent on tips, the Gratuity Protection legislation is also about setting a standard and leveling the playing field.
In his letter, Starr explains that the restaurant industry as a whole survives on extremely narrow margins and low profitability, and that in the current economic climate, rising expenses and shrinking profit margins could ultimately effect the viability of future projects he takes on in Philadelphia.