HOUSE BILL REPORT
HB 1623
As Reported by House Committee On:
Labor & Workplace Standards
Appropriations
Title: An act relating to prohibiting deductions for credit card transaction processing fees from employee tips.
Brief Description: Prohibiting deductions for credit card transaction processing fees from employee tips.
Sponsors: Representatives Obras, Fosse, Ortiz-Self, Parshley, Goodman, Macri, Donaghy, Hill, Stonier, Taylor, Berry, Santos, Peterson, Ramel, Gregerson, Reed, Farivar, Reeves, Bergquist, Kloba, Duerr, Ryu, Simmons, Cortes, Thomas, Street, Davis and Salahuddin.
Brief History:
Committee Activity:
Labor & Workplace Standards: 2/5/25, 2/14/25 [DP];
Appropriations: 2/22/25, 2/27/25 [DPS].
Brief Summary of Substitute Bill
  • Prohibits employers from using any portion of a tip, gratuity, or service charge to cover the cost of credit card processing fees. 
  • Prohibits certain entities involved in electronic payment transactions from charging processing fees on the gratuity amount.
HOUSE COMMITTEE ON LABOR & WORKPLACE STANDARDS
Majority Report: Do pass.Signed by 6 members:Representatives Berry, Chair; Fosse, Vice Chair; Scott, Vice Chair; Bronoske, Obras and Ortiz-Self.
Minority Report: Without recommendation.Signed by 3 members:Representatives Schmidt, Ranking Minority Member; Ybarra, Assistant Ranking Minority Member; McEntire.
Staff: Benjamin McCarthy (786-7116).
Background:

Washington Minimum Wage Act.

Employers covered under the state Minimum Wage Act are required to pay their employees no less that the state minimum wage rate.  The Department of Labor and Industries adjusts the state minimum wage rate for inflation each year (the current minimum wage is $16.66 per hour).  Employers must pay employees all tips, all gratuities, and certain service charges.  These amounts do not count towards the employee's hourly minimum wage.  

 

Credit Card Processing and Transaction Fees.

Credit card companies charge merchants a percentage of the total transaction as a processing fee.  These fees can include interchange fees that are paid to the banks that manage credit cards; assessment fees that are paid to card networks, like Visa or Mastercard; and payment processing fees that are paid to companies that processes card payments for merchants, like Square or Clover.  These fees typically range from 1.5 to 3.5 percent of the total payment.

 

Employers may deduct from tips, gratuities, and service charges to cover the proportional cost of the processing fee being charged on the tip, gratuity, or service charge.  For example, if a $10 tip is processed by a company that charges a 1 percent transaction fee, the employer can deduct 10 cents from the tip to cover that portion of the fee.
Summary of Bill:

Employers may not deduct any portion of an employee's tips or gratuities to pay for credit card processing fees.
Appropriation: None.
Fiscal Note: Available.
Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.
Staff Summary of Public Testimony:

(In support) This protects tipped workers to make sure they can make ends meet.  The practice of deducting from tips to cover processing fees has increased; this equates to a wage cut for low wage workers.  Workers don't have to pay for other operating costs; this adds a quasi-tax.

 

(Opposed) Tips are not wages, they are the sole property of employees.  Interchange fees are charged by the card company, not the employer.  This issue does need to be addressed; the burden should not be moved from employees to employers.
Persons Testifying:

(In support) Representative Edwin Obras, prime sponsor; and Stefan Moritz, Unite Here Local 8.

(Opposed) Julia Gorton, Washington Hospitality Association.
Persons Signed In To Testify But Not Testifying: None.
HOUSE COMMITTEE ON APPROPRIATIONS
Majority Report: The substitute bill be substituted therefor and the substitute bill do pass.Signed by 18 members:Representatives Ormsby, Chair; Gregerson, Vice Chair; Macri, Vice Chair; Bergquist, Callan, Cortes, Doglio, Fitzgibbon, Leavitt, Lekanoff, Peterson, Pollet, Ryu, Springer, Stonier, Street, Thai and Tharinger.
Minority Report: Do not pass.Signed by 13 members:Representatives Couture, Ranking Minority Member; Connors, Assistant Ranking Minority Member; Penner, Assistant Ranking Minority Member; Schmick, Assistant Ranking Minority Member; Berg, Burnett, Caldier, Corry, Dye, Keaton, Manjarrez, Marshall and Rude.
Staff: Xianyu Li (786-7094).
Summary of Recommendation of Committee On Appropriations Compared to Recommendation of Committee On Labor & Workplace Standards:

The substitute bill makes the following changes:

  • prohibits payment card networks, processors, issuers, and acquiring banks from charging processing fees on tip or gratuity amounts when the merchant transmits gratuity information at the time it authorizes or settles the transaction; 
  • allows merchants charged a processing fee after not providing gratuity information during the authorization or settlement process, to request credit from the issuing bank by submitting certain documentation within 180 days of the transaction;
  • requires certain entities to provide a mechanism for merchants to transmit gratuity information within two years of the effective date of the act;
  • makes charging a fee prohibited by this act subject to a $1,000 civil penalty;
  • prohibits certain entities from using gratuity information for unauthorized purposes and deems those actions a violation of the Consumer Protection Act;
  • makes the effective date of the act July 1, 2026; and
  • adds a null and void clause.
Appropriation: None.
Fiscal Note: Available.
Effective Date of Substitute Bill: The bill takes effect on July 1, 2026.  However, the bill is null and void unless funded in the budget.
Staff Summary of Public Testimony:

(In support) This bill makes the deduction of credit card fees from workers' tips illegal.  There is concern that the fiscal impact in the fiscal note is being overstated.

 

(Opposed) The fee on tips is charged by Visa and MasterCard for processing transactions.  For some small restaurants, absorbing the processing fees could mean closure.
Persons Testifying: (In support) Eunice How, UNITE HERE Local 8.
(Opposed) Julia Gorton, Washington Hospitality Association .
Persons Signed In To Testify But Not Testifying: None.