Who Owns the Tip? Understanding California Tip Laws

(1) Who legally owns a tip (gratuity)?
Under California Labor Code §351, any tip voluntarily left by a customer is the sole property of the employee, not the employer.
The law expressly prohibits employers from collecting, taking, or keeping any portion of a tip or gratuity left for employees by customers.

(2) I work as a server in a restaurant. My employer does not take our tips, but we are required to participate in a tip pool. All tips are collected and redistributed among servers, bussers, and bartenders. Is this legal?
Most likely, yes. According to the California Court of Appeal’s decision in Marilena Leighton v. Old Heidelberg, Ltd. (1990), tip pooling is generally lawful.
The court recognized that it is common practice for restaurants to allocate a portion of tips to bussers (often 15%) and bartenders (often 5%), and ruled that such arrangements do not violate the law.

The key factor is that the tips must be shared only among employees, not taken by the employer. Since tip pooling does not involve employer confiscation, it does not violate Labor Code §351.
However, owners, managers, and supervisors are prohibited from participating in any tip pool.

(3) If a customer pays the tip using a credit card, can the employer deduct the credit card processing fee before giving the tip to the employee?
No. California law requires that the full tip amount left by a customer using a credit card be paid to the employee.
The employer may not deduct any transaction or processing fees from the tip. Furthermore, all tips must be paid to the employee by the next regular payday.

(4) Can tips be shared with back-of-house staff such as cooks and dishwashers?
Yes. As of March 24, 2018, California law permits back-of-house employees to participate in tip pooling arrangements.
This change followed the enactment of the Consolidated Appropriations Act of 2018, signed into federal law on March 23, 2018, which amended both federal and state labor standards regarding tip distribution.

(5) My hourly wage is $15. Since I receive tips, my actual earnings exceed that amount. Does this mean my overtime pay rate should also increase?
No. Voluntary tips left by customers are not considered part of an employee’s regular rate of pay for purposes of calculating overtime compensation.
Therefore, your overtime pay rate remains at 1.5 times your base hourly wage, regardless of the amount of tips you receive.

This article is intended to provide general information on labor law principles and does not constitute legal advice. If you believe your labor rights have been violated, it is strongly recommended that you consult with an experienced labor and employment attorney to explore your legal options and seek compensation.