Today’s Friday’s Five provides a few points for employers to consider who have employees that receive gratuities. California law is very specific regarding gratuities left for employees, and since tips are property of the employee, employers must approach this area with caution. Here are five “tips” about tips in California.

1. Tips are employee’s property.
The Labor Code section 350 states unequivocally that “Every gratuity is hereby declared to be the sole property of the employee or employees for whom it was paid, given or left for.” In addition, Labor Code section 351 clearly states that “[n]o 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.”

2. Timing requirements of payment of tips left on credit cards.
Payment of a gratuity made by a patron using a credit card must be paid to the employee not later than the next regular payday following the date the patron authorized the credit card payment.

3. Mandatory tip pools are permissible under California law.
Labor Code section 351 clearly sets forth that tips are the sole property of the employee, yet California courts have also reached the seemingly contradictory conclusion that employers may lawfully require that employees must share this “sole property” with other employees through tip pools. In Leighton v. Old Heidelberg, Ltd., the court authorized mandatory tip pooling policies. Generally, mandatory tip pools are permissible as long as (1) only employees who provide direct table service participate in the tip pool and (2) the tip pool distribution is consistent with industry standards.

4. There is a difference between a mandatory service charge and a tip.
Mandatory service charges are not tips and are not governed by Labor Code section 351. Mandatory service charges are charges imposed by an establishment for specific reason, such as for parties larger than eight people. Unlike tips, these charges may be received by the employer and distributed, if at all, as the employer sees fit.

5. There is no tip credit allowed for under California law.
Tips earned by an employee cannot be counted towards the minimum wage requirement under California law. In addition, employers may not deduct the costs of any credit card processing fees or any other charges form the employee’s tips or wages.