Tips, Tip Credits, Tip Pooling, and More

California WageAndHourLaw

What Are My Rights to Tips in California?

ADVERTISEMENT - LegalConsumer.com does not endorse or review advertised products or services.

Talk to a Local Wage and Hour Attorney

Enter Your Zip Code to Connect with a Lawyer Serving Your Area


Minimum Wage and Overtime Law > What Are My Rights to Tips? > California


What Are My Rights to Tips in California?

Although many states allow employers to pay tipped employees less than the minimum wage, California is not among them. In California, your employer must pay you the full hourly minimum wage.

If you earn tips, you should know the rules about

  • what counts as a tip
  • how much your employer must pay you in addition to your tips, and
  • whether and how much you can be required to contribute to a tip sharing arrangement (also called a “tip pool”).

Under federal and California law, tips belong to the employee. An employer can never take employee tips and keep them for itself. In many states, an employer is allowed to take a “tip credit” – to count part of the tips an employee earns towards the employer’s obligation to pay the minimum wage. However, this is not allowed in California, as explained below.

Employers may also be allowed to require employees to share their tips with each other and to pass on certain costs – such as credit card processing fees – to employees by docking their tips.

Is your employer giving you all of the tips to which you are legally entitled? To find out, you first have to understand what money counts as a tip.

What Is a Tip?

Tips – also called gratuities – are money a customer gives directly to a service employee, such as a waiter, delivery driver, bellhop, cleaning staff, or counter person. They are called “gratuities” because they are, legally speaking, a gift: In exchange for good service, the customer provides a little something extra to compensate the person who provides the personal service, in addition to the cost of the meal, ride, hotel room, and so on that goes to the employer. Although tipping is customary, it isn’t required. A customer could walk out of a restaurant after paying the bill to the penny without leaving a tip. That customer would be unpopular, but would not be a criminal.

Mandatory Gratuities and Services Charges

If your employer imposes a mandatory charge on customers for service – for example, for parties of eight or more at a restaurant, or for catered meals or hotel events – that typically doesn’t count as a tip. Your employer can keep all of that money, even if the patrons don’t leave an additional amount for you. Although some employers pass all or part of these services charges on to employees, they aren’t required to.

How can you tell whether a customer has paid a mandatory service charge – which your employer can keep – or a tip to which you are legally entitled? The Internal Revenue Service says tips must meet all of these criteria:

  • The customer is free to decide how much to leave. Although the employer may suggest an amount, the customer can decide how much to tip.
  • The payment is voluntary, not mandatory.
  • The employer does not determine the amount based on its policy (for example, that parties of six or more will be charged an 18% “mandatory gratuity”) or negotiate the amount with the customer (for example, for a catered event).
  • The customer has the right to decide who gets the money – by, for instance, handing the money directly to a server or bartender.

A few states, including New York, require employers to clearly notify customers that the service charge goes to the house, not to the employees who served them. If your employer doesn’t post the legally required notice, employees might be entitled to keep the charge as a tip. Contact the California Department of Industrial Relations to find out the current rules in California.

Credit Card Fees

When an employer pays by credit card, the credit card issuer often assesses a percentage of the total charge as a processing fee. In most states, employers are free to deduct this same percentage from your tip. For example, if the customer paid $100 on a credit card for a bill of $80 plus a tip of $20, and the credit card company charged a fee of 3%, your employer could take 3% of your tip and pay you only $19.40.

A few states follow a different rule. In California, for example, employers may not pass these fees on to employees. They are considered a cost of doing business, to be borne by the employer. This means California employees are entitled to the full tip left by the customer, and the employer must pay the full processing fee to the credit card company.

Tip Credits

Employees in every state must be paid at least the minimum wage, including employees who earn tips. Employees are entitled to the highest minimum wage that applies to them, whether federal, state, or local.

The minimum wage in California is $10 an hour. Because this is higher than the federal minimum wage of $7.25, employees in California must be paid at least $10 an hour. 

A handful of local governments in California have passed ordinances establishing a higher minimum wage. If you work in one of these cities or counties, you are entitled to earn the higher local minimum wage amount:

  • Berkeley: $11
  • Emeryville: $14.44
  • Los Angeles: $10
  • Los Angeles County: $10
  • Mountain View: $11
  • Oakland: $12.55
  • Palo Alto: $11
  • Richmond: $11.52
  • San Francisco: $12.25
  • San Jose: $10.30
  • Santa Clara: $11
  • Santa Monica: $10
  • Sunnyvale: $10.30

In some localities, the minimum wage is slightly lower for smaller employers and employers who contribute a certain amount to employee benefits. Contact your city or county government office to learn the details of your local minimum wage law. 

Some states allow employers to take a tip credit: to count all or part of an employee’s tips towards the minimum wage, then pay the employee a lower hourly amount. Not all states allow a tip credit, however. In California, employers may not offset their minimum wage obligation with employee tips. Because tip credits are not allowed, employers in California must pay tipped employees the full minimum wage.

Tip Sharing and Tip Pools

Federal law allows employers to require tipped employees to share or pool their tips with other employees. Employees who receive tips must pay a certain percentage or amount into the pool, to be divided among a group of employees. Employees may participate in a tip pool only if they regularly receive tips themselves. For example, wait staff, bartenders, and bussers in a restaurant might share tips, but the cooks, bookkeeper, and reservations clerk may not take a share of the pool. Employers may not take any part of a tip pool, either.


You may also be interested in:

ADVERTISEMENT - LegalConsumer.com does not review or endorse advertisers or their products.