Questions About Tips and Gratuities for Employees

Tips and Gratuities – Part One

The California Labor Code provides that employers or their agents cannot keep or share in any portion of a gratuity given to employees by a patron. Employers also can’t use gratuities as credits (direct or indirect) against employee wages. Additionally, gratuities are the sole property of the employee.

A gratuity is defined as “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.”

The California Department of Industrial Relations also provides the following questions and answers on its website:

Question. What is a tip?

Answer. “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.”

Question. When 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?

Answer. The Labor Code Section 351 requires that the employer pay the gratuity to the employee, when payment is by a credit card, “not later than the next regular payday following the date the patron authorized the credit card payment.”

Question. My employer is deducting the credit card processing fees from my tips. Is this legal?

Answer. No. Labor Code Section 351 provides that the employer must pay the full tip without any deductions for processing fees or costs.

Question. I work in a large restaurant as a waiter. My employer told me that I am required to share my tips with the busboy and the bartender. Am I obligated to do this?

Answer. 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. In addition, the policy must be fair and reasonable.”

This means your employer can require that you share/pool your tips provided that the employees that share in the pooling of the tip are employees. “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.”

Question. Are the tips I receive considered part of my “regular rate of pay” for overtime calculations?

Answer. No. “Since tips are voluntarily left for you by the customer of the business and are not being provided by the employer, they are not considered as part of your regular rate of pay when calculating overtime.”

Patrons pay tips for good service. That’s usually your money, not the employer’s money. When employers try to reduce your income because you earned good tips by providing quality service, you have the right to hold the employer accountable.

Tips and Gratuities – Part Two

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

Answer. “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.”

This means that the employer has discretion as to how much, if any, of the mandatory service charge should be given to the employees. The amount given is treated as a bonus and should be used to increase the worker’s regular rate of pay when figuring overtime payments.

Question. My employer deducts my tips from my paycheck. Is this legal?

Answer. No. Employers can’t take any portion of your tips, nor can they reduce your wages because you were left a tip. Employers can’t use the tips as credits against any amount that you’re owed. Labor Code Section 351

Question. My employer pays me less than the minimum wage because he includes my tips in my hourly pay. Is this legal?

Answer. No. California does not allow an employer to apply your tips to your state minimum wage obligations. Employees should receive, at least, their minimum wage plus any tips they earned. Labor Code Section 351

Question. What can I do if my employer credits my tips against my wages?

Answer. You can either:

  • File a wage claim with the Division of Labor Standards Enforcement (the Labor Commissioner’s Office), or
  • You can hire a lawyer and file a lawsuit against your employer to collect the tips you earned. “Additionally, if your employer is crediting your tips against your wages, you are being underpaid your wages and thus, if you no longer work for this employer, you can make a claim for the waiting time penalty.”

Question. What is the procedure that is followed after I file a wage claim?

Answer. A Deputy Labor Commissioner for the Division of Labor Standards Enforcement (DLSE), “will determine, based upon the circumstances of the claim and information presented, how best to proceed. Initial action taken regarding the claim can be (i) referral to a conference, (ii) referral to a hearing, or (iii) dismissal of the claim.”

You work hard to earn a living. Tips can mean the difference between surviving and needing to look for a better job. If an employer is trying to grab your tips or is using your tips as a way to pay you less than you deserve, call the California Law Offices of Stephen A. Danz and Associates.

Tips and Gratuities – Part Three

“If the decision [of the Division of Labor Standards Enforcement] is to hold a conference, the parties will be notified by mail of the date, time and place of the conference. The purpose of the conference is to determine the validity of the claim, and to see if the claim can be resolved without a hearing. If the claim is not resolved at the conference, the next step usually is to refer the matter to a hearing or dismiss it for lack of evidence.”

At the hearing; you, the employer, and any witnesses will testify under oath. The hearing is recorded. The Labor Commissioner will serve the Order, Decision, or Award on all the parties.

The losing party has the right to appeal to a civil court which will set a trial date where evidence can be presented and witnesses can be heard. The evidence and testimony will be new. The evidence and testimony that was presented at the Labor Commissioner hearing will not be admissible.

Question. What can I do if I prevail at the hearing and the employer doesn’t pay or appeal the Order, Decision, or Award?

Answer. “When the Order, Decision, or Award (ODA) is in the employee’s favor and there is no appeal, and the employer does not pay the ODA, the Division of Labor Standards Enforcement (DLSE) will have the court enter the ODA as a judgment against the employer. This judgment has the same force and effect as any other money judgment entered by the court.”

Question. What can I do if my employer retaliates against me because I objected to his crediting my tips against my wages?

Answer. Employers can’t retaliate against employees who assert their rights to be paid their tips and gratuities. Employers can’t fire you for asserting your employee rights or because you even threaten to file a complaint with the Labor Commissioner.

You can file a discrimination/retaliation complaint with the Labor Commissioner. You can also hire a skilled California employee rights lawyer who will file a court claim demanding job reinstatement, payment of everything you were denied, and statutory or punitive damages for improper discrimination or improper retaliation.

Employees in California have numerous rights. Often, these rights can be enforced through civil litigation against the employer. To discuss your claim and to speak with a strong advocate, call the California Law Offices of Stephen A. Danz and Associates. We’ve been fighting for employees for 40 years. You can reach us at 877-789-9707 or complete our online contact form to schedule an appointment. Se habla espanol.