Tips & Gratuities – Important Information For Employees In California

Tipped Employees In California & California Labor Code Section 351 (“Labor Code Section 351”) 

Labor Code Section 351 prohibits employers and their agents from sharing in or keeping any portion of a gratuity left for or given to one or more employees by a patron. Furthermore it is illegal for employers to make wage deductions from gratuities, or from using gratuities as direct or indirect credits against an employee’s wages.

The California law further states that gratuities are the sole property of the employee or employees to whom they are given. “Gratuity” is defined in the Labor Code as a tip, gratuity, or money that has been paid or given to or left for an employee by a patron of a business over and above the actual amount due for services rendered or for goods, food, drink, articles sold or served to patrons. It also includes any amount paid directly by a patron to a dancer covered by IWC Wage Order 5 or 10.

What Is A Tip?

A tip is money a customer leaves for an employee over the amount due for the goods sold or services rendered. Tips belong to the employee, not to the employer.

A customer pays their bill with a credit card, and the payment includes a tip.  When can the employee expect to receive the money from the employer?

Payment of a gratuity made by a patron using a credit card must be paid to the employee no later than the next regular payday following the date the patron authorized the credit card payment.

Can my employer deduct the credit card processing fees from my tips?

No. Labor Code Section 351 provides that the employer must pay the employee the full amount of the tip that is indicated on the credit card. The employer may not make any deduction for credit card processing fees or costs that are charged to the employer by the credit card company from gratuities paid to the employee.

A worker is employed in a large restaurant as a waiter.  The waiter’s employer told the employee that he/she is required to share tips with the busboy and bartender. Is there an obligation to do this?

Yes. Labor Code Section 351 provides that “every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.”

The section has been interpreted to allow for involuntary tip pooling so long as the tip pooling policy is not used to compensate the owner(s), manager(s), or supervisor(s) of the business, even if these individuals should provide direct table service to a patron or are in the chain of service to a patron.

Further, the policy must be fair and reasonable. Therefore, an employer can require an employee to share tips with other staff that provide service in the restaurant, so long as the employees that share in the tip pooling policy are employees to whom the tip was paid, given, or left.  In this regard, the courts have validated policies that distributed tips among employees who provide “direct table service” or who are in the “chain of service” provided that employee in the chain of service bears a relationship to the customers’ overall experience. (updated March 2013).

Are tips received considered part of one’s “regular rate of pay” for overtime calculations?

No. Since tips are voluntarily left by the customer of the business and are not being provided by the employer, they are not considered as part of one’s regular rate of pay when calculating overtime.

Is a mandatory service charge considered to be the same as a tip or gratuity?

No. A tip is a voluntary amount left by a patron for an employee. A mandatory service charge is an amount that a patron is required to pay based on a contractual agreement or a specified required service amount listed on the menu of an establishment.

An example of a mandatory service charge that is a contractual agreement would be a 10 or 15 percent charge added to the cost of a banquet. Such charges are considered as amounts owed by the patron to the establishment and are not gratuities voluntarily left for the employees. Therefore, when an employer distributes all or part of a service charge to its employees, the distribution may be at the discretion of the employer and the service charge, which would be in the nature of a bonus, would be included in the regular rate of pay when calculating overtime payments.

Is it legal for an employer to deduct tips from one’s paycheck?

No. An employer can neither take one’s tips (or any part of them) nor deduct money from one’s wages because of tips earned. Further, an employer cannot credit one’s tips against the money the employer owes the employee. Labor Code Section 351

An employee is paid less than minimum wage because the employer includes the employee’s tips in his/her hourly pay. Is this legal?

No. Unlike under federal regulations, in California an employer cannot use an employee’s tips as a credit towards its obligation to pay the minimum wage. California law requires that employees receive the minimum wage plus any tips left for them by patrons of the employer’s business. Labor Code Section 351

What can an employee do if his/her employer credits tips against one’s wages?

An employee can either file a wage claim with the Division of Labor Standards Enforcement (the Labor Commissioner’s Office) or file a lawsuit in court against his/her employer to recover the lost wages. Additionally, if an employer is crediting an employee’s tips against wages, the employee is being underpaid wages and, thus, if the employee no longer works for this employer, the employee can make a claim for the waiting time penalty.

What can an employee do if his/her employer retaliates because the employee objected to the crediting of tips against one’s wages?

If an employer discriminates or retaliates in any manner whatsoever, for example, the employer discharges the employee because the employee objected to the crediting of tips against wages, or because a claim was filed or threatened to be filed with the Labor Commissioner, an employee can file a discrimination/retaliation complaint with the Labor Commissioner’s Office. Alternatively, the employee can file a lawsuit in court against the employer.

Source: California Department of Industrial Relations, Labor Commissioner’s Office, Tips & Gratuities (Accessed 1/20/2022).

Employees in California who believe they have been the victim of wage and hour violations are encouraged to contact Kehoe Law Firm, P.C. by completing the form above on the right or via [email protected] for a free, no-obligation evaluation of potential legal claims. 

Kehoe Law Firm, P.C.