SUSSEX COUNTY, Del. - A proposed bill in Delaware could change how small businesses and restaurants handle tips paid by credit card.
The legislation would prohibit credit card companies from charging processing fees on gratuities — a move that many restaurant owners in Sussex County say would provide much-needed financial relief.
At Abbott's Grill, general manager Paul Gallo says processing fees have become a significant expense as more customers rely on electronic payments instead of cash.
“Processing fees can be anywhere from two and a half to four percent,” Gallo said. “For a restaurant doing a million or even two million dollars in sales, that adds up quickly.”
Under current law, businesses must pay those fees on the total transaction amount — including tips. Supporters of the bill argue that gratuities should be treated differently because they are earned income for workers, not revenue for the business.
Carrie Leishman, with the Delaware Restaurant Association, says this bill is all about basic fairness.
"This policy has already passed in Illinois, and other states are moving in the same direction," said Leishman. "In Delaware alone, it could return nearly $6 million to local restaurants to reinvest that money directly into workers and our local economy."
By eliminating fees on tips, restaurants can avoid passing extra costs onto customers by raising prices on their menu or adding it to the check.
“Some places are having to choose to pass that along to the customer, which raises your prices by about three percent,” Gallo added.
If passed, the bill could save restaurants with tipped employees thousands of dollars each year.
However, not everyone supports the proposal.
Dover City Councilman Dave Anderson expressed concern that banks may respond by increasing other fees, potentially impacting both businesses and consumers.
“I think in the long run, there’s going to be lower tips and higher credit card fees,” Anderson said.
The bill is currently stalled in the Delaware House following pushback from the Delaware Bankers Association among others. In a statement, the association said it will continue working to prevent the legislation from becoming law.
Opponents have concerns about the unintended consequences that may affect businesses if this bill is passed.
Delaware’s legislative session is scheduled to end June 30.