California Tip Laws - What Service Workers Need to Know (2024)

Under California law, you have the right to keep any tips that you earn. Employers may not offset your tips against your regular wages.¹

Here are three key things to know:

1. If your boss misappropriates your tips, you can file a complaint with the California Labor Commissioner’s Office.²
2. Employers who violate tip laws also face misdemeanor charges.³
3. Tip pooling is legal as long as the money is not shared with owners, managers, or supervisors.

Labor Code 351 LC is the main California employment law dealing with tips and gratuities. This section states that:

“No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company. Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment.”

Below, our California labor and employment lawyers answer the following top five questions about California tip laws:

• 1. What are my rights under California tip law?
  • Who pays the credit card fee on tips?
  • Is “tip pooling” legal in California?
• 3. How are service charges different?
• 4. What happens if my employer violates California tipping laws?
  • Can I sue my employer for withholding tips?
  • Labor Board complaints about tip law violations
• 5. How long do I have to file a lawsuit about a tip law violation?
• 6. What if my employer retaliates for reporting a tip law violation?
• Additional reading

1. What are my rights under California tip law?

Under California Labor Code 351 LC, tips that are paid to you or left for you are your property.⁴

This means that your employer may not:

• Take any part of your tips or gratuities for themselves,
• Deduct any amount from your wages due to the tips you received, or
• Credit any part of the tips against your wages.⁵

Example: Raul has just started working for a car wash, at an agreed-upon regular rate of pay of $16.00/hour. He finds that he is making about $10/hour in tips.

At payday, Raul’s boss asks him how much he collected in tips. When Raul tells him, his boss says that this means he only has to pay Raul $6.00/hour. The idea is that tips cover the rest.

What Raul’s boss is saying goes against California tip law. Raul has the right to keep his tips, and his boss can’t reduce his hourly wages by that amount.

Under Labor Code 351 LC, what you earn in tips also cannot count toward theminimum wage. California minimum wage laws only apply to what an employer pays—not tips that a customer leaves.

As of 2024, the California minimum wage is $16.00 an hour.⁶

By the way, if you earn much of your income from tips, you must still be paid the minimum wage in California.⁷ This applies to servers, bartenders, etc.

Similarly, tips do not count for calculating overtime pay under California overtime law.

Who pays the credit card fee on tips?

Tips at restaurants, beauty salons, etc. are often paid by credit card. The employer is required to pay all credit card fees on tips.⁸

In other words, a boss can NOT deduct the amount of a credit card fee from your tips. You are entitled to receive the full amount of the tip left by the customer.

Example: Amy is working at a nail salon. The owner of the salon encourages customers to leave tips in cash. But sometimes customers add the tip onto their credit card bill. When this happens, the owner deducts a 2% credit card fee when he passes the tip on to Amy.

Amy’s boss is breaking the law. Under California tip laws, employers are responsible for all credit card fees on gratuities and tips.

Also, when patrons leave tips on a credit card, the tips must be paid promptly to you. Labor Code 351 requires employers to give tips to you by the next payday after the tip is paid.⁹

Is “tip pooling” legal in California?

Tip pooling arrangements are when a business collects all the tips received by employees and then splits them evenly. This practice is legal in California as long as it is only employees sharing the tips, and not managers who have the authority to hire and fire employees.

Example: A chain coffee shop has a tip jar by the cash register. At the end of each shift, a supervisor collects the tips. At the end of the week, the tips are given out to all employees who worked that week. Tips are divided based on how many hours each employee worked.

This means that employees who worked on busy shifts get the same tips as those who worked slow shifts. But this is permitted under California tip law. ¹⁰¹¹

Tip pooling may include employees who have some supervisory duties, like shift supervisors.¹²

Pooled tips at a restaurant may also be shared with workers who do not provide table service. This could mean hosts, bartenders, busboys, etc.¹³

However, pooled tips may NOT be shared with managers who have the authority to hire or fire you. These managers are considered “agents” of the employer. That means it is illegal for them to take a portion of tips under Labor Code 351.¹⁴

Example: A restaurant requires all its waiters to contribute 10% of their tips to a tip pool. The tips in the tip pool are split between the busboys/bussers, hosts, and dishwashers. This arrangement is legal under California tip law.

But let’s say a new manager at the restaurant tries to participate in the tip pool. She has the authority to hire and fire waiters. This would NOT be allowed under Labor Code 351.

2. What counts as a tip under California tip & gratuity laws?

Under California tip law, a tip is any money that is

• Paid, given to, or left for you,
• By a customer of a business, and
• Is not part of the amount the customer was required to pay for services, goods, food, or drink.¹⁵

3. How are service charges different?

Some businesses will add a required “service charge” to a customer’s bill. Unlike with a traditional tip or gratuity, the customer has no choice but to pay this amount. ¹⁶

In general, service charges are not considered tips. Employers can keep them for themselves.¹⁷

Though if a local ordinance claims that service charges are tips, then they must be passed on to you. They cannot be kept by the business owner or given to managers.

Example: Lauren is a bartender at a banquet hall that serves food and drinks. The banquet hall adds a 21% “service charge” to every contract.

The owner distributes the money collected from this charge to employees. But some of the money goes to managers who don’t actually serve food and drinks.

If this mandatory service charge is covered under California tip state law, then the owner is breaking the law. California tip law does not let employers distribute part of tips/gratuities to managers.

But whether the service charge is a tip depends on the exact facts. For example, it matters how the service charge is presented to employees and customers.¹⁸

Some California cities require certain businesses to treat “service charges” as tips. These include Santa Monica,¹⁹ Berkeley,²⁰ and Emeryville²¹.

That means that in these cities, service charges must go to or benefit you.²²

4. What happens if my employer violates California tipping laws?

Employers who violate LC 351 are guilty of a California misdemeanor crime.²³

This means that your employer can face up to sixty days in jail, and/or a fine of up to $1,000, for violating California tip laws.

Example: Steve owns a small pizza restaurant. His wife works as manager. Cashiers and delivery workers have to pool their tips. Steve’s wife always takes 10% of the tips.

Steve and his wife have committed a crime. They can face criminal fines and even jail time.

California gratuity law requires employers to keep detailed records regarding tips. They need to keep accurate records of any tips that they receive directly or indirectly from customers or from you. ²⁴

Tip law violations are serious business. So keeping these records is a very good idea for California employers.

Can I sue my employer for withholding tips?

You cannot sue your employer under California’s main tip law, Labor Code 351 LC.²⁵

However, there are other grounds upon which you can sue.

For example, you could sue your employer for conversion. In this type of suit, you argue that an employer has basically stolen your tips.²⁶

You can also file a lawsuit under California’s Unfair Competition Law. Not following California’s tip law can be a form of unfair business practice.²⁷

Finally, you can sue for breach of implied contract. This is an argument that the employer broke an agreement with its customers to give all tips to workers.²⁸

Labor Board complaints about tip law violations

You can also file a complaint with the California Labor Commissioner’s Office for a tip law violation.²⁹

The Labor Commissioner’s Office will hold a hearing on the alleged tip law violation.³⁰ This is simpler and faster than a court proceeding.

Let’s say your Labor Board complaint is successful. In that case, the Labor Commissioner will order the employer to pay you what you are owed in unpaid tips. If a tip law violation led to you getting less than minimum wage, the employer may have to pay extra “liquidated damages” too. ³¹

5. How long do I have to file a lawsuit about a tip law violation?

California law sets different “statutes of limitations” (deadlines for filing) for different types of lawsuits. Under California tip law, the important statutes of limitations are:

• A “conversion” lawsuit needs to be filed within three (3) years after the employer broke the law.³²
• A tip law violation lawsuit under California’s Unfair Competition Law must be filed within four (4) years.³³
• A lawsuit for breach of implied contract due to withheld or diverted tips must be filed within either two (2) or four (4) years. The two-year deadline applies if the contract was an oral agreement not in writing.³⁴ The four-year deadline is for breach of written contracts.³⁵
• Labor Board complaints should be filed within three (3) years of the tip law violation.³⁶

6. What if my employer retaliates for reporting a tip law violation?

California employers may NOT retaliate against you for reporting tip law violations. Workplace retaliation is illegal in California.³⁷

Let’s say you file a Labor Board complaint about a company owner withholding employee tips. The owner then fires you. This is a form of wrongful termination.

Or let’s say a manager is taking a portion of employee tips. You complain to Human Resources about this. The company does not fire you, but the manager starts to mistreat you and make your work life unbearable. This could be a form of wrongful constructive termination.

Or maybe you do not get a promotion after speaking up about tip law violations. This could be a case of wrongful failure to promote.

Additional reading

For more in-depth information, refer to these articles:

• The Case for Tipping and Unrestricted Tip-Pooling: Promoting Intrafirm Cooperation – Boston College Law Review.
• The effects of tip distribution policies: Servers’ keeping vs sharing/pooling tips affects tippers’ sentiments but not tip-giving – International Journal of Hospitality Management.
• The Case for Tipping and Unrestricted Tip-Pooling – New York University Public Law and Legal Theory Working Papers.
• Restaurant employees given $61,000 after managers caught dipping into tip pool, federal agency says – Article in USA Today.
• Do You Know Where Your Tip Money Is Going? – Article in Eater.

Legal References: