Calculating Wages for Tipped Employees in California
Employees in many different industries and occupations supplement their base earnings with tips. A tip is any money given directly to an employee by a customer as thanks for their service. They’re generally not intended for or regulated by employers.
In many cases, hard-working employees receive more compensation in tips from happy customers than they would from regular wages in comparable jobs. However, when tips make up a significant portion of your take-home pay, your legal rights and duties differ from employees with standard hourly wages or salaries.
Here’s what you should know about your rights and how to calculate your wages as a tipped employee in California.
How Tips Work in California
Under California state law, tipped employees have significantly more legal protection than they would under federal law. State laws typically override federal laws when it comes to employee protections.
In California, any tip money received by an employee legally belongs to that employee, and their employer has no right to seize any part of it. As a result, employers can’t require their workers to share tips with company supervisors, managers, or owners.
It’s also illegal for your employer to use any tips you receive as “credits” to reduce or eliminate their duty to pay you the required minimum wage. In most states, employers are allowed to pay tipped employees less than the minimum wage, but California employers must pay employees the state minimum wage regardless of tips.
Although California employers aren’t allowed to take any portion of an employee’s tips, they can legally require groups of employees to pool tips. In tip pooling, everyone’s tips go into a communal “pool,” and then each employee receives a share of the tips from that pool.
Although pooling tips is permitted in California, employers must obey certain restrictions to pool tips legally. For one, pooled tips can be distributed only to employees involved in the “chain of service” to customers. This does not include employees like cooks, dishwashers, or managers.
Pooled tips must also be divided fairly among employees in the “chain of service,” which does not necessarily mean each employee receives an equal share. For example, servers typically take home a larger portion of the tip pool than bussers or hosts.
Mandatory Service Charges and Credit Card Charges
Any money left behind by a customer that exceeds the total charge and tax for the products or services they received is considered a tip. However, it’s important to understand that there are often “extra” charges paid by customers that don’t count toward an employee’s tips.
Many restaurants, catering companies, and event hosts include “mandatory service charges” in their billing for large tables or events. These charges aren’t considered tips under state or federal law, even if the customer who’s paying fails to notice that the service charge money won’t go to the employee.
If an employer passes a portion of the money from a mandatory service charge to their employees, that money is counted as wages rather than tips. This means the employee has no right to claim the money and must pay income tax on it.
Employers in many other states also pass credit card processing fees to their employees by deducting a portion of the fees from employee’s tips. Fortunately, California doesn’t allow this practice, so California employees have the right to keep the full amount of any tips they receive from customers.
Contact an Employment Law Attorney Today
If you believe your employer may be unfairly withholding tips you rightfully earned or have questions about calculating your wages in California, contact the knowledgeable employment law attorneys of Wagner Zemming Christensen, LLP, for a no-obligation initial consultation.