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California’s labor laws protect workers, including those who rely heavily on tips and gratuities for a significant part of their income.
In California, tips and gratuities are defined as money given by a customer to an employee for services rendered. The amount is determined solely by the customer. This can include cash, credit card tips, and non-monetary items of value.
Distinction from Service Charges
It’s important to distinguish tips from service charges. Service charges are mandatory fees an employer adds, typically for banquet or large party services. These are not considered tips and can be distributed by the employer as they see fit.
Ownership of Tips
Under California Labor Code Section 351, all tips and gratuities are the sole property of the employee or employees to whom they are given. Employers, including managers and supervisors, are prohibited from taking any part of these tips.
Tip Pooling
While employers cannot take tips, they can determine tip pooling arrangements. Tip pooling involves collecting tips from all employees and redistributing them among the staff. However, only non-managerial employees who provide direct table service or assist with customer service can be included in the tip pool.
Minimum Wage and Tip Credit
California does not allow a tip credit, unlike federal law and some states. This means employers must pay tipped employees the full state minimum wage, regardless of how much they earn in tips. As of January 1, 2024, the minimum wage in California is $16 per hour for all employers, regardless of size.
When customers leave tips via credit card, employers are allowed to deduct a proportional share of the credit card processing fee from the tip amount. The deduction must reflect the actual cost imposed by the credit card company and cannot exceed it. For example, if the credit card company charges a 2.5% fee on all transactions, the employer can deduct 2.5% from the tip amount. Despite this allowable deduction, employers must pay the remaining tip amount to the employee no later than the next regular payday.
Tip Reporting and Taxation
Tips are considered taxable income and must be included in the employee’s gross income for federal and state tax purposes. Employers have to ensure that tips are correctly accounted for and must withhold federal and state income taxes, Social Security, and Medicare taxes.
One common issue in the hospitality industry is the misappropriation of tips by employers or managers. This can include taking a portion of the tips for themselves, using tips to cover business expenses, or not properly distributing tips from a tip pool. These actions are illegal under California law.
Another issue is when an employer includes ineligible employees in a tip pool, such as managers or back-of-house staff who do not provide direct table service. Delays or failures in paying credit card tips to employees can also be a source of disputes.
If you experience any issues with tips, such as improper distribution or misappropriation, document the details and speak to an Orange County Wage & Hour Attorney for legal advice. They can explain your rights clearly and help you understand whether your employer’s practices are compliant with the law. A lawyer can also help:
Gather Evidence
An Orange County wage & hour attorney can review your pay stubs, tip records, and any written communications regarding tip policies. They can help you compile a comprehensive set of evidence to support your claim. If other employees have experienced similar issues, your attorney can gather statements from them to strengthen your case. This can help demonstrate a pattern of improper conduct by your employer.
Form a Legal Strategy
A lawyer will provide specific advice on the best course of action. This might include negotiating with your employer, filing a complaint with a labor agency, or pursuing legal action.
Negotiate with Your Employer
Your lawyer can handle all direct communication with your employer or their legal representatives, presenting your case and negotiating for a fair resolution. This can often lead to a quicker and less contentious resolution than going to court.
Protect Your Rights
If a settlement is reached, your attorney will ensure the agreement is fair and comprehensive.
File Complaints and Legal Action
An attorney can help you file a complaint with the California Labor Commissioner, which handles disputes related to wage and hour laws, including tip issues. If necessary, your lawyer can file a lawsuit on your behalf. They will handle all aspects of the litigation process, from drafting the complaint to representing you in court.
Navigating a tip dispute can be complex and stressful, but an experienced wage and hour attorney can provide the guidance and advocacy you need.
There are several types of compensation you may be entitled to receive if you pursue a claim against your employer:
Recovery of Unpaid Tips
The full amount of tips that were wrongfully withheld or misappropriated by an employer. In some cases, interest on the unpaid tips may also be available, calculated from when the tips should have been paid until the date they are received.
Liquidated Damages
Liquidated damages equal to the amount of unpaid wages, including tips. This essentially doubles the compensation, serving as a penalty against the employer for violating wage and hour laws.
Waiting Time Penalties
If an employer willfully fails to pay all wages due at the time of termination, including tips, the employee may be entitled to waiting time penalties. These penalties can amount to the employee’s daily wage for each day the wages are late, up to a maximum of 30 days.
Penalties for Failure to Provide Itemized Wage Statements
Employers are required to provide accurate, itemized wage statements. If they fail to do so, employees can recover $50 for the initial violation and $100 for each subsequent violation, up to a maximum of $4,000.
Attorney’s Fees and Costs
The expenses incurred due to pursuing a claim.
Back Pay
If the improper handling of tips led to a reduction in overall compensation, employees might be entitled to back pay to cover lost wages. For example, if the tip misappropriation resulted in the employee earning less than the minimum wage.
Injunctive Relief
In addition to financial compensation, employees can seek injunctive relief. This involves the court ordering the employer to change their practices to comply with labor laws.
Compensation for Emotional Distress
In some cases, particularly where the employer’s conduct was egregious, employees might be able to recover compensation for emotional distress. This is less common but can be applicable in situations where the wrongful withholding of tips caused significant stress or hardship.