1) Who owns a tip?
California law is clear that voluntary tips left for an employee for goods sold or services performed belong to the employee, not the employer. Labor Code section 351 provides, “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…. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.”
2) Is employer mandated tip pooling legal?
Yes. In the seminal 1990 case on tip-pooling, Leighton v. Old Heidelberg, Ltd., the court held that an employer’s practice of tip pooling among employees was not prohibited by section 351 because the employer did not “collect, take, or receive” any part of a gratuity left by a patron, and did not credit tips or deduct tip income from employee wages. The court relied upon the “industry practice” that 15% of the gratuity is tipped out to the busboy and 5% to the bartender, which was “a house rule and is with nearly all Restaurants.” However, owners, managers, or supervisors of the business cannot share in the tip pool.
3) When do tip tips left on credit cards have to be paid, and can a deduction made for processing the credit card transaction?
If a patron leaves a tip on their credit card, the employer may not deduct any credit card processing fees from the tip left for the employee. Moreover, tips left using a credit card must be paid to employees no later than the next regular payday following the date the credit card payment was authorized. See Labor Code § 351.
4) Does California allow an employer to credit a portion of the employee’s tips towards minimum wage?
No. While some states provide the employer with a “tip credit”, California law does not allow this. However, with the recent passage of the increase in California’s minimum wage from $8 per hour to $9 per hour on July 1, 2014, and then to $10 per hour on January 1, 2016, there is more discussion of examining whether a tip credit should be considered in California. However, current law does not allow employers to “credit” an employee’s tips towards the minimum wage requirement for each hour worked.
5) Do tips change an employee’s regular rate of pay for overtime calculations?
No. Because tips are voluntarily left by customers to employees, tips do not increase an employee’s regular rate of pay used to calculate overtime rates.