California Tip Laws

Under the Fair Labor Standards Act (FLSA), tips are regulated. Employers who meet certain criteria are permitted to take a partial credit against minimum wage obligations for tipped employees. Tipped employees includes those engaged in jobs in which they regularly and customarily receive tips.

The tip credit was created by Congress in 1966, and adjustments occurred on December 28, 2021, when the 2021 Dual Jobs Final Rule went into effect. A federal court vacated portions of the final rule in October 2024, which effectively reinstated the original dual jobs regulation (29 C.F.R.531.56(e). It recognizes that an employee may work in tipped and non-tipped occupations, and employers are only permitted to take the tip credit against minimum wage obligations for hours worked in the tipped occupation.

The FLSA mandates that a tipped worker must be paid at least $2.13 per hour. The FLSA tip credit can be equal to the different between the direct (or cash) wage paid to the employee and the federal minimum wage. Only tips actually received by an employee count when making the determination of a tipped employee and applying the credit.

The FLSA also permits employees to “pool” or share tips with other eligible employees, although it doesn’t impose a limit on the amount or percentage of the contribution of each employee in a valid tip pool.

State law may differ from the federal FLSA standards. Review what tip laws apply in California.

When Were the Tip Laws Last Updated in California?

The most recent change to tip laws in California occurred in January 2023 to align with the state’s minimum wage updates.

Does California Have Tip Laws That Differ from Federal Tip Laws?

Yes. The labor code in California is comprehensive and more generous to tipped employees in various areas than the federal regulations. Under Section 351, an employer may not take any portion of a tip left for an employee or deduct from the employee’s wages based on tips received. Additionally, tip crediting is not permitted.

Who Holds the Ownership of Tips in California?

Any tip left for a tipped employee in the state must be given in full to that employee.

What are the Rules for Distribution of Credit Card Processing Tips in California?

Under the FLSA, an employer is permitted to deduct any credit card fees from tips paid on cards. However, California doesn’t permit this, instead requiring the employer to cover the fees and the employee to receive the full tip amount.

Employers are also required to pay out any tips collected via credit card by the next regular payday after the date on which the credit card purchase was authorized.

What are the Tip Pooling Rules in California?

Employers are allowed to require tipped employees to share earned tips with other staff members who are in the customer chain of service (including providing table service). The policy for sharing tips must be reasonable and tips must be paid in a timely manner.

Who Can and Can’t Participate in Tip Pools in California?

Tipped employees may participate if they provide direct table service or are otherwise in the chain of service to the customer. Dishwashers, cashiers, cooks, and managers may not participate in tip pools.

Is there a Difference Between Tips and Service Charges in California?

Yes. Mandatory service charges belong to the employer, not the employee, as they are not considered tips.

However, in certain cities and municipalities, service charges are required to be paid to the employee who performed service for the customer resulting in the collection of the service charge. One example is Santa Monica.

Can Employers Deduct Credit Card Fees from Tips in California?

No, employers must cover any credit card fees and pay the employee the full tip amount.

Do Tips Count Toward the Minimum Wage in California?

No. California law does not permit employers to use a “tip credit” toward the minimum wage obligation. Employees must be paid the full hourly minimum wage plus any received tips. The current minimum wage is $16 per hour.

Do Tips Factor into Regular Rate Calculations for Overtime Pay in California?

No, tips do not factor into rate calculations for overtime pay. An employer must pay an employee one-and-a-half times their regular hourly wage for any hours worked beyond 40.

Are There Cities and Municipalities in California That Have Their Own Tip and Service Charge Rules That Differ from Statewide Laws?

Yes, Santa Monica has a law stipulating that an employer must pay a service charge to the employee providing the service.

What Are the Record-Keeping Requirements for Employers Regarding Tips in California?

Employers must keep detailed records of all tips reported by employees, including amounts and dates of service. If tip pooling is in effect, the record should also include the arrangements and the distribution of tips to eligible staff members.

What Options Do Employees Have for Remuneration if Their Tips are Withheld in California?

An employee may take legal action against an employer who violates California tip laws.

What are the Penalties for Employers for Not Complying with California Tip Laws?

Under Section 354, a violation of state tip laws is a misdemeanor offense. The maximum penalty is up to 60 days in prison, a $1,000 fine, or both.

Managing the regulations associated with tips in California can be a challenge. But with WorkforceHub, your business can ensure accuracy. The numerical clock prompt feature allows the employee to input their received tips at the end of the shift, and that information would be available for reporting and payroll processing.

California Labor Commissioner’s Office: Tips and Gratuities