Tip Adjustments
Accepting tips is a customary practice at restaurants and salons. But it is not as simple as it may seem. Both Visa and MasterCard have guidelines as to how tip adjustments (adding the tip after the card has already been processed) are handled. Their guidelines do differ in some respects and they will be outlined below.
First, let us take a look at the chart from where we will get our data. This chart summarizes Visa and MasterCard’s guidelines for tip adjustments. We will explain in further detail below.
| MCC/SIC Code | Description | MasterCard Amount Edit Rules | MasterCard Amount Tolerance | Visa Amount Tolerance |
|---|---|---|---|---|
| 5811 | Catering | No amount edits if <= $10 | 10% | 0% |
| 5812 | Restaurants | No amount edits if <= $25 | 25% | 20% |
| 5812 | Bars | No amount edits if <= $25 | 25% | 0% |
| 5814 | Fast Food | No amount edits if <= $25 | 25% | 20% |
| 7230 | Hair Salons | No amount edits if <= $25 | 25% | 0% |
| 7298 | Health & Beauty Spas | No amount edits if <= $10 | 10% | 0% |
MCC/SIC Code: This four digit number is used by processing banks, amongst others, to classify businesses by type. For example, all restaurants, from the family restaurant on the corner to national chains like T.G.I. Fridays, have a MCC/SIC Code of 5814.
Description: This is the kind of business associated with a MCC/SIC Code. (See above).
MasterCard Amount Edit Rules: MasterCard has set minimums for which a sale may be adjusted. For example, MasterCard does not allow a caterer to adjust a transaction for a tip if the transaction is less then $10. Doing so will result in the transaction automatically downgrading to a non-qualified rate.
MasterCard Amount Tolerance: MasterCard has set maximum amounts for how much a consumer may tip a business. For example, MasterCard allows a restaurant to accept a tip of up to 25% of the sales value (e.g. if a tansaction is $50 the maximum amount allowed to be tipped is $12.50). If a tip exceeds the maximum allotted amount will result in the transaction automatically downgrading to a non-qualified rate.
Visa Amount Tolerance: Like MasterCard, Visa has set maximum amounts for how much a consumer may tip a business. Additionally Visa is more strict in which business types it will allow to accept tips. Unlike MasterCard, Visa will not allow caterers, bars, hair salons, and beauty salons to adjust their sales for tips. Doing so will result in the transaction automatically downgrading to a non-qualified rate. Additionally, Visa does not allow any transactions paid for with a check card (a.k.a. offline debit) to be adjusted for tips. Any Visa transaction paid for with a check card that has a tip added to it will result in the transaction automatically downgrading to a non-qualified rate.
If your business is listed on this chart as not being able to adjust sales for tips it does not mean that you cannot receive tips on credit card payments. Visa and MasterCard do allow another form of tipping. It is called “tip at the time of sale”. In this situation, during the transaction the terminal will prompt the user to enter the amount the customer wishes to tip. If the tip is added at this time it is considered part of the original transaction (the total amount of the sale is the original sale value plus the tip amount). As a result, no tip adjustment is necessary. Your business is able to add the tip to the sale with no potential for downgrading.