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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