Under California law, every tip left behind for an employee is declared to be the sole property of the employee to whom it was paid, given, or left for. (Labor Code section 351). In layman’s terms, the tip belongs to the employee, not the employer. An employer may not deduct any credit card processing fees from the top left for the employee on a credit card. Moreover, tips left using a credit card must be paid to employees no later than the next regular payday following the date the credit card payment was authorized. (Labor Code section 351).
Employers may also engage in tip-pooling, which involves the collection of all or a portion of all the tips collected from directly tipped staff to be put into one large “pool.” From there, tips are redistributed among a larger group of employees. Tip pooling ensures that all staff members are fairly compensated for their work, especially when there are multiple services being rendered and single points of payments. Owners, managers, or supervisors of the business cannot share in the tip pool. There must also be a reasonable relationship between tip pooling arrangements (e.g. a policy in which cocktail service must give one percent of tips to bartender). Tips do not increase an employee’s regular rate of pay used to calculate overtime because the tips are voluntarily left by customers to employees.