Giving employees a tip is a well-accepted and legal practice in the business environment. Both the federal and the California laws have long recognized that the tips and gratuities left by satisfied customers after a service should sorely be in favor of the employee. Even though this law is well established, some employees in the hospitality industry and other business sectors still fall victim to the tip and gratuity theft. Below are some important tipping standards and laws governing gratuities in the state of California. Read on to get started.

Gratuities and Tips 

Wages and gratuities are two different set of rewards for the employees. Tips are not legally considered as a part of the wages and are not included in the regular rate of pay when calculating the employee’s unpaid overtime.

Under the federal & California-law, employers cannot take part or all of the tip given to the employee. Unlike other states, the California law doesn’t also allow the business owner to take tip-credits from the employee even if the tips exceeds the minimum wages to be paid.

Tip Pooling

This is a term used to describe the practice where employees collect their tips before they are re-distributed among the workers. Tip pooling, is, however, limited to employees regarded to be in a chain of service. The latter include services offered by bartenders, and hosts. Employees serving as cooks, cashiers or dishwashers are not part of the chain-of-service, hence tip pooling doesn’t apply. Tip pooling also follows a fair system where each employee is paid out in a reasonable proportion depending on the number of services offered. In a classical restaurant setting, the DLSE agency has formulated a fair distribution plan that sees waiters take 80%, buses-15%, and bartenders the remaining 5%. The question of whether this kind of distribution is fair or not depends majorly on the business set up and its level of performance.

When to Call it a Tip

When the tipping is voluntary and a satisfied customer pays directly in cash, then that is obvious. The employer, may however, choose to impose a mandatory-service-charge and the tip is not guaranteed. If the payments plus the tip is made with credit card; the rules might slightly change.

Mandatory Service Charges

For the case of large tables, catered events and private parties, the restaurant may impose a mandatory-service-charge on the bills. Under the California and federal law, payments made on such occasion is not considered a tip and the employer has the right to keep all the “service charge”. Most employers out of good will decide to pay some amount to the employees as a tip. Doing so, however, incur the employer some tax burdens and administrative cost.

Under California law, when the tip is paid with credit-card; the tip should be paid in full to the employee, regardless of the processing fee.

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Many workers in California including those who carry luggage, sever and mix drinks, clean hotel rooms among any others earn tips. In fact, some workers earn more money from tips than what they get from their monthly salary. If you are working in a job where you earn tips, then it is crucial to understand your legal rights particularly under hour’s law and wage. In this article, we are going to discuss California’s legal policies regarding the dispersal of tips and gratuities to employees.

What is a tip?

A tip is money that has either been given, paid or left for an employee that is above the actual amount of service rendered or products bought by the patron because the patron is impressed with the quality of service rendered.

What really counts as a tip?

For any amount of money to count as a tip (as opposed to a service charge), it must be:

• Entirely voluntary.
• The customer must have the full right to determine the amount to give.
• The amount should not be subject to negotiation or set by an employer’s policy.
• The customer must have the full right to determine the person who should receive the payment.

Basics of Tips

It is very important to note that the tips only belong to the employee. The Californian law is very protective to the employee and clearly states that the tip belongs to the employee. This means that employers have no right to take part of the tip that the employee has been given by the patron. Either the manager, supervisor or the owner of the business cannot force you to share the tip.

California’s laws also states that the employer is not supposed to count your tips then pay you a minimum wage that is less that amount. Some employers in other states deduct the amount paid from tip as along at the amount earned from tips make up the difference. This concept is known as “tip credit.” However, California law does not allow employers to do this. Employers are supposed to pay employees the minimum wage and not use tips to make up the difference.

What is tip pooling?

The California law also does not allow tip pooling. Tip pooling is a concept where an employer may compel employers to pool their tips together then have them distributed to employees in a pool. If the employer wants to create a pool, then there are certain guideline that needs to be followed. The first guideline that the employer needs to follow is if the employees are in a chain of service that enables them to receive tip from a particular customer. For instance, bartenders, hosts and servers are usually considered to be in the same chain of service while dishwasher, cashiers and cooks are not. In addition to that, the employer must ensure that tip is distributed fairly and equally depending on the quality and amount of service that the employee has rendered to the customer.

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What are tips and gratuities?

Tips and gratuities essentially mean the same thing. In their basic definition, they are used to refer to money voluntarily left for an employee of a business that is more than exceeds the set amount owed for the sale of goods and services.

Gratuities and tips are given as a reward for excellent services and ranges from few cents to the large amount that customers are willing to give. The tradition of giving tips is an accepted practice that has been there for quite long.

How does California law protect tipped employees?

The California law and courts have for long acknowledged that for a customer voluntarily leaving behind tips is a reward for the service provided and thus employers have no right to withhold the amounts due whatsoever.

Under the Californian labor laws, code 351 prohibits employers or their agents from withholding or keeping any tip or gratuity willingly given to an employee. The laws go ahead to state that tips and gratuities are sole properties of the employee or employees and in the regard, none has the right to withhold them back whatever the reason.

Tips and gratuities are very common in the hospitality industry if you work in this industry the California law protects your interest in regard to tips and gratuities. For instance, the law does not allow a tip credit. Section of 351 of the labor code expressly prohibits employers from crediting any tip or gratuity against the wages due for an employee.

As stated before, the law defines tips and gratuities as sole properties of an employee or employees, so for all employers covered under this law are required to pay tipped employees their full wages regardless of the amount they earn from tips. Any employee who credits tips and gratuities to meet the minimum wage requirements are violating the law and as an employee, you need to take action against such violations.

The law also allows employees covered under this law to impose a mandatory tip/gratuity policy. According to Californian labor laws, a tip left behind by a customer belongs to all employees who directly make contributions to the delivery of service to the customer(s).

Additional Information

The employees can also, for instance, agree among themselves to share or pool tips or come up with any policy regarding the tips since they belong to all the employees. The law, however, exempts floor managers in charge of firing and hiring of employees from partaking in any tip and gratuity policing.

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The law has specific guidelines when employers can withhold employees’ wages. First, the employer can impose deductions on an employee’s wages when he is allowed by the state or federal law. The second option where the employer can have deductions is where the employee expressly directs the employer to do so in writing.

The reasons behind the employee allowing the deductions can be to cater for insurance premiums, contribution to other deductions among other reasons. The third reason why the employee can request for deduction is when the employer deducts the wages in order to cover for health and welfare reasons.

The ability of the employer to deduct employees’ wages based on breakages or loss of equipment is clearly regulated in law.

Some of the unlawful deductions which can be made by an employer include the following:

Gratuities

An employer cannot receive gratuity under the law. If the employer is deducting from you, then you can sue them for violation of the law.

Photographs

If the employer will require your photography in the workplace, you are not the one to pay for the photograph. The law in labor code section 401 prohibits such deductions.

Bond
If the employer will require a bond of an employee, then the employer will be required to pay for the costs related to the bond under Labor Code Section 401.

Uniforms

If an employer will require the employee to wear uniforms, then the employer should pay for the uniforms. It is stipulated under Labor Code Section 2802. The term uniforms can refer to wearing apparel of distinctive color.

Business Expenses

If an employee incurs expenses, then he is entitled to a full refund by the employer. The Labor Code Section 2802 stipulates all the expenses the employee can be reimbursed.

Medical or Physical Examinations

The employer is not allowed to withhold any salary or wages of an employee due to fees arising due to pre-employment examinations. The Labor Code Section 222.5 states clearly the rights of employees and employers in regard to the examination carried out before employment begins.

FAQ’s About Deductions in the Workplace

Is an employer allowed to make deduction by law?

Yes, the law allows the employer to deduct your salary under your personal or the federal law provisions.

Can an employer pay for breakables?

No, the law in the state of California leaves the breakages under the employer to cater for them. It is assumed that the breakables are among other losses are inevitable in a business operation hence the employer should plan for them.

Photo Credit: Shutterstock/Billion Photos

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Tips and gratuities are an area of wages in that can become confusing for employers, employees, and the legal assistance who settle their disputes. We have put together a few frequently asked questions that we hear about restaurant tips and gratuities on a daily basis that will be helpful in deciding if a situation is legitimate or illegal.

Q: Does my employer have any rights to my tips? 

A: No, any money you get in the form of a tip is entirely yours and your employer has no say over it.

Q: Can I be required to share my tips with my fellow employees by my employer? For example, the bartender or the busboy. 

A: Yes. As long as they took part in the same service as you did, then your employer has a right to ask you to share your tip since the law allows for involuntary tip pooling.

Q: How soon can I receive my tip from my employer if it is included in a credit card? 

A: Your employer is required to add all your credited tips on to your pay check on the next immediate pay day, or in cash that evening or the next day.

Q: What qualifies as a tip?

A: Any money that has been left to the employee by a customer apart from the amount which is due for the goods or services that have been rendered. Tips only belong to the employee to the exclusion of the employer.

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

A: No. if the credit card company charges the employer any credit card processing fees, the gratuities paid to the employee cannot be deducted to cater for those costs. The full amount shown on the credit card should be paid to the employee.

Q: What should I do if my employer does not comply with the law in matters concerning the tips I receive? 

A: There are two options. You can either take it up with the Division of Labor Standards Enforcement by filing a claim against your employer or file a law suit in court.

Q: What should I do when my employer retaliates for going against his abuse of my tips? 

A: If your employer discriminates against you in any way for objecting to his abuse of your tips, you should either file a lawsuit in court or file a complaint about retaliation/discrimination against your employer with the labor commissioner’s office.

Photo Credit: Shutterstock/Billion Photos

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Under the California labor law, an employer can lawfully withhold deductions from his employee’s wages only in cases required by federal or state law. This is true when it was authorized by the employee in writing an order to cover benefit plan contributions, insurance premiums, or any other deductions.
Authorized Deductions

Authorized deductions are not a rebate of the wage of the employee. Other situation when an employer can withhold wages from his employee’s is when this amount is covering welfare, health, or pension contributions that are authorized expressly by a collective bargaining or wage agreement.
What is Section 224?
The section 224 of the labor code stipulates that it is legal to make deductions from wages in certain situations. However, employers are not allowed to fire employees for the reason that their wages are the subject of a withholding for judgment fees.

It is specifically regulated that the employer’s ability to withhold amounts form his employee’s wages due to loss of equipment, breakage or cash shortage. This ability is also limited by decisions of the court. Several court decisions have restricted significantly the employer’s ability to collect deductions from his employee’s wages.

Among the common payroll deductions that are unlawful in California but still often made by employers are:

• Gratuities – employers cannot deduct any amount for wages due to an employee on account of gratuities left or given to an employee nor can they take, collect, or receive any gratuity left or given to an employee. However, many restaurants have a policy allowing for tip sharing or pooling among employees who directly service customers.

• Photographs – in the case that an employer asks for a photo of an employee or applicant, the costs of the photograph must be covered by the employer.

• Bonds – employers that require a bond of an employee or applicant should pay the bond’s cost.

• Uniforms – if the employee is required by an employer to wear a uniform, the employer is the one to pay the uniform’s cost.

• Business expenses – employees are entitled to reimbursement for their expenses or losses caused by the discharge or their work duties.

• Physical or medical examinations – employers are not allowed to deduct or withhold from employees’ wages for any pre-employment physical or medical examination required as a condition of employment or by any local ordinance, as well as any state or federal regulation or law.

An employer can deduct lawfully from his employee’s wages under California law if:

• It’s required by state or federal regulations or laws such as income garnishments or taxes.

• It’s authorized expressly by the employee (in writing) to cover medical or hospital dues, insurance premiums.

• It’s authorized by a collective wage or bargaining agreement for covering welfare and health or pension payments.

Photo Credit: Shutterstock/ Billion Photos

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