Laws on Tips GratuityThe restaurant hospitality industry houses employees who rely primarily on tips and gratuities as their primary source of income.“Gratuity” is defined in the Labor Code as a tip, gratuity, or money that has been paid or given to or left for an employee by a patron of a business over and above the actual amount due for services rendered or for goods, food, drink, articles sold or served to patrons. Tips and gratuities belong solely to the employee to whom they are given. The employer and it’s agent cannot collect or receive any gratuity that is left for the employee by a patron. Additionally, the employer cannot credit the employee’s tips against his/her wages to satisfy wage requirements.Neither can an employer deduct money from an employee’s wages because of the tips he/she earns.

Simple as it may seem, this is one of the most prevalent issues I hear about in the employment law context – especially with respect to those that work in the hospitality industry such as bartenders, food servers, baristas, etc.Most of these people who complain about the way tips are distributed at their workplace are afraid or reluctant to complain about it to their employer due to their unfamiliarity with the applicable law.In light of the foregoing, it would be wise for anyone who works in the hospitality and/or restaurant industry to be knowledgeable about the law on gratuities in order to be able to distinguish between permissible and legal tipping practices versus impermissible and illegal tipping practices.

Tip Pooling

Tip pooling is very common practice in the restaurant and hospitality industry whereby tip pools are created so employees who receive tips share those tips with other employees. There are several reasons which justify this practice. First, it spreads the risk of low-tipping patrons among all tipped employees. Second, it creates a way for tips to be shared with employees considered deserving of tips, but not directly tipped by customers (e.g., table bussers). This is extremely common and frequently adopted in restaurants where all servers share in assisting all tables unlike the traditional direct table service arrangement. If an employer elects to use a tip pooling policy, the tips must be distributed to all classes of employees who contribute to the patron’s service. The employer or any of its agents (usually supervisors and managers) are not allowed to share in the pool.

Credit Card Tips

Employers are absolutely prohibited from deducting from a tip put on a credit card for processing fees or costs that are charged to the employer by the credit card company. Additionally, employees must receive their credit card tip amounts no later than the next regular payday following the date the patron authorized the credit card payment.


Because tips are voluntarily left for an employee by the customer of the business and not being provided by the employer, they are not considered as part of the employee’s regular rate of pay when calculating overtime.

Tips v. Mandatory Service Charge

This is an important distinction because many people often get confused by the two. A tip is a voluntary amount left by a customer/patron for an employee. A mandatory service, charge, on the other hand, is an amount that a patron is required to pay based on a contractual agreement or a specified required service amount listed on the menu of an establishment. (e.g., 10-15% mandatory service charge added to the cost of a banquet.) Any distribution of a service charge to the employee, since it is not a tip, is at the discretion of the employer and would be in the nature of a bonus for purposes of calculating overtime payments.

Employees should not be afraid to speak up, complain, and/or object to an employer’s unfair tipping practices either directly to the employer or by making a compliant with the Labor Commissioner. Even if the employee is wrong in his/her complaint but genuinely believed the employer was being unlawful in its tipping policy, the law against retaliation protects employees from retaliating or discriminating against an employee in any manner whatsoever (e.g., discharge, demoting, reducing work hours, etc.).