What Should Employers Know About Managing Tipped Employees in California?
In many sectors of the service industry, gratuity is not only common practice but a staple of a living wage. Here are some tips to keep in mind as an employer of tipped employees. As noted in #1, the law has recently changed significantly on the issue of which employees can share in a tip pool.
Can Employers Create a Mandatory Tip-Pooling Policy?
1. You can create a mandatory tip-pooling policy.
Pooling tips is a great way to encourage your employees to provide consistently stellar service to your customers, and mandatory tip-pooling policies have been approved in California by the Courts of Appeal and the DIR. Support staff may be given a percentage of the tipped employee’s tips. Due to a recent change in federal law, tips may now be shared with back of the house employees. That means that kitchen staff may be included in the tip pool. The tip should be in reasonable proportion to the amount of direct service to the customer the employee has provided.
Can Tips Be Credited Toward Minimum Wage in California?
2. Tips cannot be credited towards minimum wage.
In some states, gratuity is used as a credit towards hourly wages. This practice is prohibited in California. Here, gratuity is the property of the employee, and, except for percentages given to support staff in a legal mandatory tip-pooling policy, the employee must receive the tip in addition to the hourly wage.
Are Managers Allowed to Keep Any Portion of Employee Tips?
3. Tips are for employees, not managers.
An owner, manager, or supervisor who has the authority to hire, fire, or direct an employee is prohibited from taking an employee’s tips. This is true even if the manager directly helps the customers, or supports the service staff. By California law, gratuity belongs to the employees providing direct service, not to the employer or anyone who acts on behalf of the employer to direct and control employees. Notwithstanding this rule, shift supervisors who participate in a team that provides customer service may share the tips in a collective tip jar.
Are Mandatory Service Charges Considered Tips?
4. Mandatory service charges are not tips.
Though there are some exceptions, generally a mandatory service charge added to a customer’s bill is not a gratuity. It therefore may be kept by the employer, or distributed as the employer sees fit. The portion of the service charge distributed to the employee will be considered wages, and thus may be included in the calculation of the employee’s overtime rate.
Who Is Responsible for Credit Card Transaction Fees on Tips?
5. Transaction fees are not the employee’s responsibility.
If a customer pays gratuity on his or her credit card, the transaction fee cannot be withdrawn from the employee’s tips. The tips are the sole property of the employees, and the employer is responsible for covering the transaction fees or for passing the charge on to the customer.
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