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OSI Stops Plan To Take Fees From Tips
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Published: February 2, 2008
TAMPA - The parent company of Outback Steakhouse and its sibling restaurants has rescinded a policy of requiring its wait staff to cover credit-card processing fees for tips included on their customers' bills.
Tampa-based OSI Restaurant Partners said Friday that it was dropping the policy. That decision came a day after The Tampa Tribune began making inquiries about it.
The Arkansas Democrat-Gazette this week reported that the policy was being implemented in OSI restaurants in Little Rock and Rogers, Ark.
"Upon reflection, we have decided that this is not a good idea, so we are rescinding that policy," Joseph Kadow, OSI's executive vice president and chief officer for legal and corporate affairs said Friday.
Kadow said the system had been tested in Illinois and was introduced in Arkansas last week.
It would have been implemented in states with relatively high minimum wages, including Florida, he said.
Typically, restaurants cover credit-card processing fees, which can range from about 1.5 percent to 3 percent of a transaction.
If a check for two diners totaled $100, for example, and the customer added a $20 tip on the card, the server typically would receive the full $20 tip.
Under the shelved OSI policy, the restaurant would have paid the credit card fee on the meal tab, but the server would have the processing fee subtracted from his or her tip.
Kadow said credit card fees average 1.67 percent across the OSI system, which includes Fleming's Prime Steakhouse, Carrabba's Italian Grill, Bonefish Grill, Lee Roy Selmon's and other restaurants.
He estimated that covering the credit card fees on tips cost the company $6 million to $7 million a year.
"The company wasn't taking any money from the servers, the company was just asking the servers to pay their share of the fee that has to go to the credit card company," Kadow said. "Upon reflection, it just didn't sit right as the right message to give to our servers."
It is difficult to put a number on what might have been the potential effect on employees, because credit card fees vary, as does the average amount of tips at OSI restaurants.
The volume of tips included on credit card bills versus paid in cash also would affect a server's bottom line, and there are intangibles such as the day of the week and length of the server's shift. But Kadow said the policy might cost a server anywhere from 85 cents on an $80 tab to $4.75 for a $250 bill.
One server at a Bonefish Grill in Rogers, Ark., told the Democrat Gazette that the new policy would cost her about $800 a year if she worked five shifts a week.
Fee Deduction Is Legal
A U.S. Department of Labor fact sheet on tips says the practice of taking out a percentage of a waiter's tips to pay credit card fees is legal, as long as the employee's wage still meets at least the minimum wage. In Florida, the minimum wage is $6.79 an hour for most employees, or $3.77 an hour for tipped employees.
Alan Higbee, a Tampa lawyer who has represented restaurant companies for years, said he was intrigued by the practice, even though he had not heard of other companies doing it.
Higbee said Friday that he might recommend the idea to his restaurant clients.
"Actually it sounds pretty brilliant to me," Higbee said.
Richard Hadden, a Jacksonville workplace consultant who co-authored "Contented Cows Give Better Milk" and other books on corporate culture and productivity, disagreed.
"I have nothing against bold ideas and being on the leading edge, but that's a pretty boneheaded notion," Hadden said when told of OSI's tip policy. "It really has a negative impact from a public relations point of view."
Practice Has Been Around 30 Years
How prevalent the practice is wasn't clear Friday. A spokeswoman for the Florida Restaurant and Lodging Association could not be reached.
Kadow said the practice is not new, and in fact, has been around since at least 1977. In an e-mail response to the Tribune, Michael Lynn, a hospitality professor at Cornell University, said some other restaurant companies do "basically the same thing," although he didn't name any chains.
Nick Vojnovic, president of the Tampa-based Beef O'Brady's chain, said he had not heard of the practice.
However, given cost increases at most restaurants, including wages, it sounds logical, he said.
OSI had been a publicly traded company until last summer, when two private equity investment companies, Bain Capital Partners of Boston and Catterton Partners of Greenwich, Conn., purchased it and took it private.
Reporter Jerome R. Stockfisch can be reached at (813) 259-8402 or jstockfisch@tampatrib.com. Reporter Michael Sasso can be reached at (813) 259-7865 or msasso@tampatrib.com.
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