Is it illegal to keep tips from employees? Tip & Gratuity Law in California

In California, tips given to employees belong to the employees. It is unlawful for employers (including managers and supervisors) to share any portion of customers’ tips given to employees. Additionally, the employer may not deduct an employee’s wage from the tips; it is illegal for employers to use tips as a credit against an employee’s pay. In this article, we will answer some of the most frequently asked questions regarding tips law in California. If you have questions regarding tips, please contact this law office for a free consultation: 619-550-1321.

Table of Content

  • What is a tip?
  • When can an employee expect to receive tip money from the employer when the customer gave tips by credit card?
  • Is it legal for my employer to deduct the credit card processing fees from my tips?
  • Do I have to share my tips with a busboy and the bartender?
  • Are tips part of my hourly pay for overtime calculations?
  • Is a service charge by a restaurant considered a tip or gratuity given to employees?
  • Is it legal for my employer to deduct tips from my paycheck?
  • Is it legal for my employer to include my tip money as part of the minimum wage?
  • Is it a crime for my employers to violate the Tip and Gratuity laws?
  • What can I do when my employer violates tip and gratuity laws?

What is a tip?

A tip is money that has been given to an employee by a customer of a business. A tip also includes money paid by a customer to a dancer. (IWC Wage Order 5 or 10) “Gratuity’ includes any tip, gratuity, money, or part thereof 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 the business for services rendered or for goods, food, drink, or articles sold or served to the patron.”[i]

When can an employee expect to receive tip money from the employer when the customer gave tips by credit card?

When a customer gave tips to an employee using a credit card, the tip money must be given to the employee as earliest as possible but no later than the next payday.[ii]

Is it legal for my employer to deduct the credit card processing fees from my tips?

No. The employer must pay the employee all the tip money that is written on the credit card. It is illegal for the employer to subtract the credit card processing costs from the tip money.

Do I have to share my tips with a busboy and the bartender?

Yes.  A tip is money that belongs to the employee(s) “every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for”.[iii] (Labor Code Section 351) The courts have interpreted the law to allow tip pooling[iv]; however, tip pooling does not extend to managers, supervisors, or the owner(s) of the business even if these people served the customers.

Example: A restaurant requires that all servers give 10% of their tips to the manager. The is illegal. Likewise, it is illegal for a restaurant manager takes 10% of the tips and distribute the rest to the servers, bar tender, and busboy.

These policy reasons extend to mandatory tip pools, which include employees who do not provide direct table service but participate in the chain of service. Dishwashers and other kitchen staff are encouraged to give their best possible service as they know they will participate in the financial rewards if the customers are pleased with their work, even though the customers do not personally see them doing it. And a mandatory tip pool makes certain that these employees receive their fair share when the patrons are pleased with their service but have no way to tip them directly.[v]

 

Are tips part of my hourly pay for overtime calculations?

No. The employer is required to pay the employee overtime. The tip money does not come from the employer; therefore, the tip money is not part of calculating overtime pay.

Is a service charge by a restaurant considered a tip or gratuity given to employees?

No. A tip is when a customer voluntarily leaves money for an employee. A service charge by a restaurant is money a customer is required to pay by the restaurant or business.

Example: Tasty Bistro charges a 10% service fee to John Doe’s $100 dinner. The John Doe is required to pay the $10 service charge. The $10 is not voluntary money left for the employees. Therefore, when Tasty Bistro at its discretion distributes any or all of the service fee to its employees, the money is considered a bonus. The bonus money must be included in the regular hourly rate of pay when calculating hourly overtime rate.

Example 2: Hotel Awesome charges its customers a $50 service charge; the Hotel is free to do whatever it wants with the service charge. “Because the service charge is mandatory and because the hotel is free to do with the charge it as it pleases, the service charge is simply not a gratuity which is subject to the discretion of the individual patron.”  The hotel is free to retain for itself all or some of the service charge or to give some portion of the service charge to the employees.

Is it legal for my employer to deduct tips from my paycheck?

No. Your employer cannot keep any of your tips. Your employer cannot deduct money from your paycheck because of the tips you received. Your employer must pay you the full amount of your paycheck regardless of how much tips you received.

Is it legal for my employer to include my tip money as part of the minimum wage?

No. California law prohibits employers from using tip money as part of calculating minimum wage. An employer must pay the minimum wage regardless of the amount an employee received in tip money. (Labor Code Section 351)

Example: Employee John’s is a waiter, and his wage is $15 per hour. John worked 6 hours for the employer; John’s wage for the day is $90. John received $50 tips from customers. John made $140 for the day’s work, which is $90 in wage + $50 in tips.

Is it a crime for my employers to violate the Tip and Gratuity laws?

Yes. Any employer who violates any provision of this article is guilty of a misdemeanor, punishable by a fine not exceeding one thousand dollars ($1,000) or by imprisonment for not exceeding 60 days, or both. (Labor Code, § 354)

 

What can I do when my employer violates tip and gratuity laws?

Take a stand. You can hire a lawyer to help you secure restitution from your employer for unlawful business practices. The employer has to pay you restitution for tip money taken from you.

If you have questions regarding tips, please contact this law office for a free consultation: 619-550-1321.


Legal Reference

[i] CA Labor Code § 350 (2017)  As used in this article, unless the context indicates otherwise:

(a) “Employer” means every person engaged in any business or enterprise in this state that has one or more persons in service under any appointment, contract of hire, or apprenticeship, express or implied, oral or written, irrespective of whether the person is the owner of the business or is operating on a concessionaire or other basis.

(b) “Employee” means every person, including aliens and minors, rendering actual service in any business for an employer, whether gratuitously or for wages or pay, whether the wages or pay are measured by the standard of time, piece, task, commission, or other method of calculation, and whether the service is rendered on a commission, concessionaire, or other basis.

(c) “Employing” includes hiring, or in any way contracting for, the services of an employee.

(d) “Agent” means every person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees.

(e) “Gratuity” includes any tip, gratuity, money, or part thereof 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 the business for services rendered or for goods, food, drink, or articles sold or served to the patron. Any amounts paid directly by a patron to a dancer employed by an employer subject to Industrial Welfare Commission Order No. 5 or 10 shall be deemed a gratuity.

(f) “Business” means any business establishment or enterprise, regardless of where conducted.

[ii] Labor Code, § 351 No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company. Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment.

[iii] Budrow v. Dave & Buster’s of California, Inc. (2009) 171 Cal.App.4th 875, 879 [“There are only two conditions created by section 351: the person must be an employee and the tip must have been ‘paid, given or left for’ the employee.”].

[iv] Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 1068 [“We reject plaintiff’s contention that employer-mandated tip pooling constitutes a prohibited ‘taking’ by the employer within the meaning of section 351.”].

[v] Etheridge v. Reins Internat. California, Inc. (2009) 172 Cal.App.4th 908, 926 [“While [the employee] has not alleged a factual basis for a cause of action for an unfair or inequitable tip pool, it is my view that such a cause of action may be asserted in a proper case. That a tip pool, in order to be valid under Labor Code section 351, must be fair and equitable is, in my view, mandated by the rationale of Leighton. When that court concluded that the tips belong  to all employees providing service to a patron, it stated that the tip was ‘to be equitably distributed between them.’ (Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 1070.)”].)