Here’s a Tip: Tipping Rules for Restaurants in California

By: Alyssa Ziegenhorn

Tipping is a hot topic in the restaurant industry, especially with the recent rise in online and to-go ordering. We’ve gathered answers to some of the most common tipping questions for restaurant owners, managers, and employees.

Who Owns Tips?

Under both federal and California state law, tips belong to the employee, not the employer. Tips are a gift from the customer to the employee and so the employer cannot keep any portion of the tip.

Can Restaurant Owners Take a “Tip Credit”?

Federal law allows a restaurant to count tips toward employees’ minimum wage. This means restaurant owners can pay employees as little as $2.13/hour as long as the employee’s tips make up the rest of the difference to the federal minimum wage of $7.25/hour.

California law does not allow this practice. In California, employers must pay the full state minimum wage regardless of the amount of tips an employee receives. As of Jan. 1, 2022, state minimum wage for employers with less than 26 employees is $14 and $15 for employers with 26 or more employees. Some cities have their own minimum wage higher than the state requirement.

What is Tip Pooling?

Employers can mandate tips be shared between a pool of eligible employees. This practice is known as “tip pooling.” Although employees are the rightful owners of tips, both California and federal law allow owners to mandate tip pooling as long as owners, managers, and supervisors do not receive any tips from the pool.

Who Can Participate in a Tip Pool?  

The Department of Labor implemented a rule in 2011 prohibiting employees who don’t usually receive tips, such as cooks and dishwashers, from being included in tip pools. In 2018, Congress passed a law forbidding employers from taking employee tips. The DOL provided guidance that non-tipped employees could be included in tip pools in certain circumstances, and formalized this position in 2020 with revised regulations. These regulations took effect on March 1, 2021.

Federal: Under the DOL regulations, employers can include employees who don’t usually receive tips (nontraditional employees) in a tip pool provided they (i) pay at least federal minimum wage and (ii) do not take a tip credit.

California: Because California does not recognize a tip credit toward minimum wage, the requirement is a bit different from the federal rule. In California, mandatory tip pooling is allowed as long as the employees in the pool are part of the “chain of service.” This just means employees must have some relationship to the customer experience, but aren’t necessarily serving the customer directly.

Under both rules, it is important to remember that owners, employers, managers, and supervisors cannot participate in the tip pool.

Are There Any Exceptions?

If a manager or supervisor also performs the same duties as a regular employee (for example, working a shift as a server or host) they can participate in the tip pool for purposes of that shift. Owners, however, can never participate in a tip pool. If an owner receives a tip directly from a customer while performing serving or other regular employee duties, they may keep it.

How Should Tips Be Distributed?

The rules are a little fuzzy on this subject, but most sources agree that it’s best to set up a “fair and reasonable distribution” of the tips.⁠ This simply means the employer has an impartial system for deciding how much is paid to each employee. The distribution % of tips from the pool must be based on a fair system, generally in proportion to the amount of service the employee provided to the customer. Usually this means the majority should go to the server and smaller portions to the busser, bartender, or host. The California Department of Labor Standards Enforcement has found 80% to wait staff, 15% to bussers, and 5% to bartenders to be legal in a traditional restaurant setting. However whether something is “fair” depends on the particulars of each business—so this isn’t the only possible split.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.