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California Tip Pooling Laws

California law protects employees from having to share their tips with the owners or managers of business. Employers are allowed to implement certain types of mandatory tip sharing arrangements, but these arrangements must conform to the law.

California Labor Law for Tips

California Labor Code Section 351 states that:

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.

California Labor Code Section 353 requires employers to keep records of tips received: "Every employer shall keep accurate records of all gratuities received by him, whether received directly from
the employee or indirectly by means of deductions from the wages of the employee or otherwise. Such records shall be open to inspection at all reasonable hours by the department." See California Labor Code for additional code sections and definitions.

Typical Violations

The most common violation is a "tip pooling" program that keeps a certain portion of tips for the employer. Any person who has authority to hire or fire employees or supervises, directs, or controls the acts of other employees is considered a manager and may not receive any of the tips given to those employees.

Another common practice that is illegal is the "tip credit" system. This is a pay program in which tips replace your wages. For instance, if the employer pays you $8.00 per hour (minimum wage) or your tips, which ever is greater, this is a type of "tip credit" system that is illegal in California. Under California Labor Law, your tips and your wages are separate. One can not be used to pay the other.

If the employer charges a credit card processing fee, an "accounting fee", or any other type of fee, deduction, or charge, for handling or processing your tips, this is illegal. The law is clear that you must be paid all of your tips without such charges.

Legal Tip Sharing Arrangements

Many types of tip sharing arrangements of legal, even if they are mandated by the employer and even if the employee has no real way to bargain for different terms. As long as no manager or supervisor is participating in the pool, the employer is allowed to split the tip up in a "fair" manner among all people who are normally part of the "chain of service." This has been interpreted to mean any waitperson, busperson, bartender, hostess, wine steward, or "front room" chef. The tip can be split with the bartender even if that particular patron did not order any drinks. However, requiring tips to be paid to people who have little or no connection to the "chain of service" is illegal. Just about any type of "fair" arrangement will be permuted as long as a manager or owner does not receive any portion of the tip. The term "fair" means any distribution of the tips among people who provide some type of service to the customers. A pooling agreement will be "fair," even if you received a higher tip-out at your last job, or even if the "industry standard" typically pays you a higher amount.

Service Charge vs Tip

Problems can also come up when the employer places a mandatory "service charge" on a bill. For instance, in many car service operations, the bill has an automatic 15% "service charge" added to the bill. Such service charges will belong to the employer and not be considered tips if they are mandatory and not waivable by the customer. However, if the charge is negotiable or is simply "added as a convenience," then it will be considered a tip and belong to the employees. A typical example is when a restaurant automatically places an 18% gratuity on the bill for large parties. Even though the charge is automatically added to the bill, it is still considered a tip.

Conclusion

Mandatory tip pooling can be legal, but the employer must not abuse it and try to keep the money for themselves. In general, my office does not handle tip pooling cases unless there is some other type of Labor Code violation such as unpaid overtime or minimum wage. Unfortunately, there are no attorney's fees available for suing for illegal tip pools, and it is generally not economically feasible to litigate pure tip pooling cases. You can find additional information on the Labor Board's website here.