Adding on to a credit card charge - hair salon

graywings123April 27, 2010

There is a discussion on another forum and I thought maybe someone here could shed some light. Some hair salons have recently stopped the practice of allowing customers to add money to the credit card charge for the purpose of including the tip to the stylist.

This part of the transaction was handled in varying ways. Some salons would hand you back the amount and have you put it in an envelope for the stylist. Other salons would just somehow pass it on to the stylist.

Has something changed with the credit card regs that would cause this? Some shops still do it.

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sushipup1

I haven't run into this, but then, I try to always pay cash. I wonder if it has something to do with the salon not wanting to acknowledge tips for tax-reporting reasons. Tips are expected in restaurants, perhaps the IRS does not assume the same for hair salons?

    Bookmark   April 27, 2010 at 7:04PM
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hilltop_gw

I haven't run into this either as I try to pay cash or sometimes by check. The salon is likely charged the 2% fee (or whatever it is the CC companies charge) on the full amount but they're not getting the benefit of the tip amount, so they may not like it. Or, the tip portion is actually a cash forward which should be charged interest immediately by the CC company. I know if I go to most stores, other than a restaurant, they won't "add on" a few dollars on a CC purchase so I can get cash back so maybe it's just a store policy.

    Bookmark   April 27, 2010 at 9:30PM
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cindyb_va

There is nothing to the recent changes in credit card regulations that would impact adding a tip to a credit card.

My guess is that your salon has been paying stylists cash out of the drawer when a client tips on a credit card and this is causing them to run short of cash during the business day. They may have even had instances where they did not have enough cash on hand to pay the daily tips to the stylists who were owed. To prevent this from happening, they are requesting clients to pay any tips in cash.

    Bookmark   April 28, 2010 at 6:32AM
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ian_bc_north

I don't know about hair salons as I always pay cash there.
I do know however that in Canada some years back the income tax people noted a discrepancy between the tips reported on credit card receipts and the income reported by some waiters. The affected waiters were not at all happy. I generally pay all tips in cash these days.

    Bookmark   April 28, 2010 at 9:51AM
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evaf555

"I do know however that in Canada some years back the income tax people noted a discrepancy between the tips reported on credit card receipts and the income reported by some waiters. The affected waiters were not at all happy."

The practice, as far as I have known it, has been for a waiter or waitress to declare minimum wage on their income tax. It is common for restaurants to pay less than minimum, but if the employee's hourly income was actually less than the minimum wage, the restaurant is required to make up the difference.

Adding the tip to the credit card provides more info to the tax man regarding the actual income of the employee. Cash can be spent on necessities instead of declared as income.

    Bookmark   July 11, 2010 at 9:48AM
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maifleur01

The wise server knows enough that they don't want anyone looking at their taxes so they report at least a small amount over the minimum for tips. Since at least in most restaurant's the tips are divided among the staff the amount is not directly credited to the server.

A person that receives cash for part of their income and does not report the whole amount should not complain when because of their life style their income is reviewed. Living a flashy lifestyle is a flag that there is probably hidden income.

    Bookmark   July 12, 2010 at 12:20AM
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christine

My guess is it was eating into the salon profits. Let's just say, for example, that the credit card companies charged 10%. A person has a $100 charge and wants a $20 tip. The credit card company gets $12. The stylist gets her $20 tip and the salon owner gets $88. If the customer pays cash for the tip, the salon owner makes $90. The numbers are smaller, more like 3% vs 10%, but I am sure it adds up over time and they just wised up to it and changed their practices...

As for paying your taxes, don't be foolish. I know a hairdresser who never reported her income and now she is in retirement with no ability to collect social security since she does not have enough credits.

    Bookmark   July 19, 2010 at 5:14PM
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