Gratuity (Tip) Payment – What Employers Should Do to Avoid Problems Under California Law

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January 7, 2019

Under the California Labor Code, an employer or its agent is prohibited from collecting, taking, or receiving a patron’s gratuity.  [Lab. Code § 351.]

Who is an agent of the employer?
California law defines an agent as any person (other than the employer) who has authority to hire or discharge an employee or to supervise, direct, or control the acts of employees.   [Lab. Code § 350(d).] So what factors might a court look at to determine whether someone, such as a floor manager, is an agent of the employer? A court might look at the following:

  • Does the person schedule servers, hire employees, or recommend the discharge of employees?
  • Does the person supervise servers on a daily basis and assume host duties at the same time?
  • Does the person hire servers without consulting management, or discipline employees without the employer’s consent?
  • Does the training manual refer to the person’s position as a supervisor?

If any, or all, of these apply to a floor manager, a court may find that the floor manager is an agent of the employer, and therefore cannot collect, take, or receive tips.

What an employer should do to avoid problems with tipping:
To avoid tipping problems, employers should keep in mind the following wage and hour rule.

1.  Know who is in the “tip pool.”  California law permits tip-pooling [Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 1067 – 1072], but your management team must not share in the tip pool.  Tip-pooling policy should follow these requirements:

A.  A server can be required to share tips only with other employees (i.e., not managers) involved in direct service to the guests; and

B.  A server generally cannot be required to share more than 15% of the server’s tips with the bus person and 5% each with the bartender, wine steward, and non-managerial host.

Previously, “back of the house” employees (such as dishwashers, cooks, and janitors) could not share in tip pools, because tip pools were restricted by federal law to workers who “customarily and regularly receive tips.”  [Oregon Restaurant and Lodging Association v. Perez (9th Cir. 2016) 843 F.3d 355, 364.]  This changed in March 2018, when a change in federal law allowed states like California to include “back of the house” employees to share in tip pools.

2.  Don’t use “tip credits.”  California’s wage and hour rules prohibit employers from paying less than minimum wage to a tipped employee by including tips the employee receives in the calculation of the employee’s wage.

3.  Pay your employees the tips paid by credit card.  If a customer tips with a credit card, you must pay the employee the full gratuity expressed on the charge slip.  This tip must be paid no later than the next regular payday after the customer authorizes the credit card payment.  Also, don’t deduct from the employee’s tip any processing fees you might have to pay the bank or credit card issuer.  [Lab. Code § 351.]

It is important to note that these rules apply to California generally.  Local ordinances may have separate requirements and regulations regarding gratuities and tips.

Need more information?
ESKRIDGE LAW may be contacted by phone (310/303-3951), by fax (310/303-3952) or by email (  Please visit our website at

This article is based on the law as of the date posted at the top of the article.  This article does not constitute the provision of legal advice, and does not by itself create an attorney-client relationship with Eskridge Law.