Minimum wage is fairly standard and the laws surrounding it are generally laid out and easy to follow.  It’s a whole new ballgame for employers when they have tipped workers to consider.  If you employ servers, bartenders, busboys, bellhops, employees in the personal service industry or any other employee who routinely receives more than $30 monthly in gratuities this article is for you.  Employees who routinely receive more than $30 a month in tips or gratuities are considered a “tipped worker” and the laws regarding tipped employees is somewhat different than those for non-tipped employees.

California Tipped Employee

Minimum Wage for Tipped Employees

You might be under the impression that the minimum wage for tipped employees is lower than that of non-tipped employees, but if you employ tipped workers in California you would be wrong.  California is one of the few states that do not follow the Fair Labor Standard Act’s (“FLSA”) “Tip Credit”.  What is the tip credit? The tip credit allows employers to use a percentage of an employee’s tips as a credit towards the required minimum wage hourly rate, which as of May 1, 2017 is $9.80 an hour. However, California does not abide by the FLSA tip credit, therefore, the California tipped employee minimum wage is $10.50 an hour unless your specific city has set a higher rate.

Tip Pooling

What is tip pooling? Tip pooling is where an employer requires employees to pool or combine their tips into one collective and then distribute them amongst a group of employees. California law does allow for tip pooling and provides specific guidelines for the creation of the tip pool. There are two main rules regarding the creation of tip pooling. First, the employees that are included in the tip pool must be a part of the “chain of service” being provided. In other words the waiter and busboy would be part of the “chain of service” but the cashier or hostess would not. Secondly, the collected gratuities must be disbursed in a fair manner. The California Department of Labor Standards Enforcement (DLSE) provides the following guidelines to a fair disbursement of tips: 80% shall go to the initial line or the waiter staff, 15% shall go to the followers or the busboys, and the remaining 5% shall go to the bartenders.  Another key part of the tip pooling guidelines is that supervisors or managers may not be included in the tip pool even if they have participated or worked in any capacity within the chain of service.

Determining the Employee’s Tip?

This may sound easier than it actually is, especially in the day and age of the credit card.  If you work in an all cash business, tips are easy to figure out, the employees get the amount the customer leaves over and above the price of the service.  However, if your business accepts credit card payments you are probably all too aware of the service charges imposed by the credit processing companies.  Some states allow an employer to deduct a proportionate amount of the processing fees from the employee’s gratuities. Again, California does not allow this process.  Regardless of whether you are a California cash business or not, you must take processing fees into consideration when determining an employee’s gratuity.

California does allow employers to disburse at their discretion any mandatory service charge collected.  Should your company impose a mandatory service charge for a specific reason, that service charge is not considered a tip, and you may choose to provide your employees with a percentage and keep a percentage of this business, it is completely up to the employer.

Tipping and the laws surrounding tipped employees may seem a bit fuzzy or convoluted at first inspection but once you have a standard protocol in place you will find the laws easy to follow.  If your business needs guidance on these or any other area of employment law, Goldbach Law Group provides a full array of employment counseling and guidance for small businesses.

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