Many employees receive tips as part of their jobs – and you might be surprised to learn that there are tip laws in California. Occupations in the service industry, such as restaurant servers, housekeepers and drivers earn regular hourly pay from their employers, and customers have the option to give them extra money as a tip or gratuity for service.
There are a lot of myths and mysteries surrounding tips and what employers are allowed to do, though, so we’re here to set the record straight on:
- California’s tip pooling law
- Tips versus wages
- Tips and overtime wages
- Legal consequences for employers on tip and gratuity violations
California’s Tip Pooling Law: What You Need to Know
California’s tip pooling law says that it’s perfectly legal for employers to require tip pooling – the practice of one employee receiving a tip and being made to put it in a pool that will be divided at a later time. In practice, it can work in a couple of ways. One is that several tipped employees put all their tips together and divide them up in previously agreed-upon percentages. However, if employees are tip pooling in this way, it’s only legal if:
- The people who participate in the pool are all employees
- The tips that go into the pool must have been given to employees
- The employer, owner, manager and supervisors cannot take a share of the tip pool
For the most part, employers that mandate tip pooling but don’t follow these rules to a T are in violation of tip laws in California.
Related: Minimum wage in Los Angeles
Are Tips Considered Wages in California?
In California, unlike many other states, tips and gratuities are not considered wages. They are taxable, though, but that’s another story.
Employees in California are entitled to receive at least minimum wage as payment for their work. Employers cannot count the tips that employees earn against their wages. In some states, that’s the norm – and in practice, it means that employers can pay employees just a few dollars an hour with the expectation that the employees will earn enough in tips to bring that up to (or above) minimum wage. It’s called a “tip credit.”
Michigan is one such state, for example. The so-called “tipped minimum wage” is $3.52 per hour, which means servers and bartenders, as well as other tipped employees in the service industry, only earn that from their employers. They’re supposed to earn enough in tips to bring that hourly wage up to the minimum, and if they don’t, the employer must make up for it so that the tipped employee makes at least the state’s minimum wage. The employee doesn’t have to earn more than minimum wage every hour, either. As long as the pay averages out to minimum wage per hour, the employer is legally in the clear.
Fortunately, California is more protective of its employees through tip laws. Tip credits are illegal in our state, and any employment contract that allows them violates the law.
Tips and Overtime Wages
There’s an important distinction with tips and gratuities you may need to know about, too. California law requires employers to pay employees who work a certain number of hours an overtime wage – but because tips aren’t considered wages (and because they always come from customers instead of the employer), the employer doesn’t have to pay them as part of the employee’s overtime wage. The employer only has to pay the rate based on the employee’s regular hourly wage.
Tip and Gratuity Violations: Are There Legal Consequences?
There are legal consequences for employers that violate tip and gratuity laws. In fact, it’s a crime – violation of these laws can be a misdemeanor, and the employer can be fined up to $1,000 or sent to jail for up to 60 days (or both). There’s more, though; the employer can owe the employee a significant amount of money, and a judge can order the payment.
Do You Need to Talk to a Lawyer About Tip and Gratuity Violations?
If your employer has violated your rights when it comes to tips and gratuities, you could have legal recourse.
Call us at 818-230-8380 now to talk to a lawyer who understands the law and how it applies in your situation. We’ll answer your questions and tell you about your options.