Labor Code Section 351 prohibits employers and their agents from sharing in or keeping any portion of a gratuity left for or given to one or more employees by a patron. Furthermore it is illegal for employers to make wage deductions from gratuities, or from using gratuities as direct or indirect credits against an employee’s wages.
The law further states that gratuities are the sole property of the employee or employees to whom they are given.
“Gratuity” is defined in the Labor Code 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.
SOME FAQ REGARDING TIPS & GRATUITIES
1. What is a tip?
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.
2. 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?
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. Labor Code Section 351.
3. My employer is deducting the credit card processing fees from my tips. Is this legal?
No. Labor Code Section 351 provides that the employer must pay the employee the full amount of the tip that is indicated on the credit card. The employer may not make any deduction for credit card processing fees or costs that are charged to the employer by the credit card company from gratuities paid to the employee.
4. 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?
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. Therefore, your employer can require that you share your tips with other staff that provide service in the restaurant so long as the employees that share in the tip pooling policy are employees to whom the tip was paid, given, or left for. 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.
5. Are the tips I receive considered part of my “regular rate of pay” for overtime calculations?
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.
6. Is a mandatory service charge considered to be the same as a tip or gratuity?
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. Therefore, when an employer distributes all or part of a service charge to its employees, the distribution may be at the discretion of the employer and the service charge, which would be in the nature of a bonus and would be included in the regular rate of pay when calculating overtime payments.
7. My employer deducts my tips from my paycheck. Is this legal?
No. Your employer can neither take your tips (or any part of them), nor deduct money from your wages because of the tips you earn. Furthermore, your employer cannot credit your tips against the money the employer owes you. Labor Code Section 351.
8. My employer pays me less than the minimum wage because he includes my tips in my hourly pay. Is this legal?
No. Unlike under federal regulations, in California an employer cannot use an employee’s tips as a credit towards its obligation to pay the minimum wage. California law requires that employees receive the minimum wage plus any tips left for them by patrons of the employer’s business.
9. What can I do if my employer credits my tips against my wages?
You can file a lawsuit in court against your employer to recover the lost wages. 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.
10. If I break or damage company property or lose company money while performing my job, can my employer deduct the cost/loss from my wages?
No, your employer cannot legally make such a deduction from your wages if, by reason of mistake or accident a cash shortage, breakage, or loss of company property/equipment occurs. The California courts have held that losses occurring without any fault on the part of the employee or that are merely the result of simple negligence are inevitable in almost any business operation and thus, the employer must bear such losses as a cost of doing business. For example, if you accidentally drop a tray of dishes, take a bad check, or have a customer walkout without paying a check, your employer cannot deduct the loss from your paycheck.
There is an exception to the foregoing contained in the IWC wage orders that purports to provide the employer the right to deduct from an employee’s wages for any cash shortage, breakage or loss of equipment if the employer can show that the shortage, breakage or loss is caused by a dishonest or willful act, or by the employee’s gross negligence. What this means is that a deduction may be legal if the employer proves that the loss resulted from the employee’s dishonesty, willfulness, or grossly negligent act. Under this regulation, a simple accusation does not give the employer the right to make the deduction.
Labor Code Section 244 clearly prohibits any deduction from an employee’s wages which is not either authorized by the employee in writing or permitted by law, and any employer who resorts to self-help does so at its own risk as an objective test is applied to determine whether the loss was due to dishonesty, willfulness, or a grossly negligent act. If your employer makes such a deduction and it is later determined that you were not guilty of a dishonest or willful act, or grossly negligent, you would be entitled to recover the amount of the wages withheld.
11. What, if anything, can my employer do if I experience shortages in my cash drawer?
Your employer may subject you to disciplinary action, up to and including termination of employment. Additionally, your employer can bring an action in court to try to recover any damages and/or losses it has suffered.
12. What can I do if my employer retaliates against me because I objected to his crediting my tips against my wages or to him making unlawful deductions from my wages?
If your employer discriminates or retaliates against you in any manner whatsoever, for example, he discharges you because you object to his crediting your tips against your wages or because you object to him making unlawful deductions from your wages, or because you file a claim or threaten to file a claim with the Labor Commissioner, you can file a lawsuit in court against your employer.
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