The Restaurant Owner’s Guide to Tip Pooling in California

The restaurant industry is one of the most important economic engines in California. Statista reports that restaurant and foodservice companies employ more than 1.8 million people in our state. Many California restaurants use tipping as part of their business model for employee compensation. As a restaurant owner, you may be considering whether to implement a tip-pooling system for your staff. It is lawful to do so, but you need to ensure that certain standards are met. Here, our Riverside County employment law attorney highlights the key things that restaurant owners should know about tip pooling regulations in California.

Background: California Law Says Tips are for Employees, Not Employers 

Under California law (CA Labor Code § 351), “no employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity.” What does that mean in practice? Voluntary tips left by customers are always for employees, not for employers. A California employer cannot lawfully take customer tips provided for the benefit of employees.

Tip Pooling is Lawful in California—But Employers Must Meet Certain Requirements 

The pooling of tips is allowed in California. Restaurants are allowed to collect tips together before distributing them. However, there are strict rules and regulations regarding how tip pooling works. Here are three key points:

• Tip Pool Must Be Fair and Equitable: California employers have a legal duty to ensure that the tip pooling system is fair and equitable. A discriminatory system is unlawful.
• Tip Pool Should Have a Clear, Predetermined Formula: It should not be a mystery how tips are pooled. There should be a clear predetermined formula, in writing.
• Managers Cannot Be Part of Tip Pool (With Very Narrow Exceptions): California law generally does not allow managers or supervisors to share in tip pooling systems. However, state courts have ruled that there is a narrow exception for managers who share the exact same duties as tipped employees (Chau v. Starbucks Corp.).

All Tipped Workers in California Must Be Paid at Least a Minimum Wage 

The federal Fair Labor Standards Act (FLSA) and California law require all employers—including those in the restaurant industry—to ensure that their tipped workers are paid at least a mandatory minimum wage. As explained by the U.S. Department of Labor (DOL), California is one of a small number of jurisdictions that require employers to pay tipped employees full state minimum wage before tips are taken into consideration. In other words, restaurants in California cannot take a “tip credit” toward minimum wage obligations, under state wage and hour laws. An employer must pay employees at least the California minimum wage for each hour worked—in addition to any tips that they receive. The takeaway is that, unlike in the majority of U.S. states, California employers cannot count employee tips towards minimum wage obligations.

Contact Our Riverside County Wage and Hour Lawyer for Employers Today

At Sloat Law Group, our California wage and hour attorney for employers has the skills and experience you can count on. If you are a restaurant owner with any specific questions or concerns about federal or California state tip pooling regulations, we are more than happy to help. Call us now or contact us online to arrange your completely confidential case review. We work with restaurant employers in Riverside County and throughout California.

Sources:

 statista.com/statistics/800770/number-of-restaurant-and-foodservice-jobs-in-the-us-by-state/ 

law.justia.com/codes/california/2021/code-lab/division-2/part-1/chapter-3/article-1/section-351/

dol.gov/agencies/whd/state/minimum-wage/tipped