“Tip Pooling” – Is it allowed in the California workplace?

Tip pooling is legal in California so long as the pool does not include managers who have the authority to hire or fire you. The only time managers can join in the tip pool is if they do the same work as you.

Here are four key things to know:

1. Employers must distribute funds in the tip pool fairly and according to a set formula.
2. Employers can have mandatory tip pooling arrangements.
3. You can take cash tips immediately, but credit/debit tips are given on your next payday.
4. Tips are not part of your regular wages, but they are taxable.

What is the definition of a tip pool?

A tip pool is a fund that comprises some or all of the tips that you and your co-workers have earned. The fund is then distributed in a fair and reasonable way to you all according to an agreed-upon formula and established tip pooling policies.

To be legal under California law, these tip pools have to:

• consist of employees,
• be funded with tips that were given to those employees, and
• exclude the employer, or any agent of the employer, from receiving tips from the fund.¹

The employer is your boss.² An agent of the employer is anyone

1. who can hire or fire you, or
2. who can supervise, direct, or control what you do on the job.³

Can a manager accept tips in California?

Managers cannot keep or withhold tips given to you. Though an employer’s agent – such as a manager – may benefit from a store-wide tipping pool if the agent receives a tip by a customer and has the same tasks as you.⁴

For example: A coffee shop in Los Angeles has a mandatory tip pool. Money left in the tip jar is distributed to employees and shift supervisors every week according to a formula. Shift supervisors are agents of the employer because they control what other employees do on the job. However, they also work as baristas during their shifts. These shift supervisors may benefit from the collective tip jar.⁵

As a service employee, you can use tip pools to:

• offset the differences between working shifts that are during peak and off-hours,
• reduce competition at work, or
• lighten the strain of the workday.

Can an employer require tip pooling?

California employers can have mandatory tip pooling arrangements without violating the state’s labor laws.⁶ However, employers cannot deduct hourly wages from you based on the amount of gratuity that you received – often known as a “tip credit.”⁷

This California law provides greater protections than the Fair Labor Standards Act (FLSA). It ensures that you receive at least the state’s minimum wage. As of 2024, California’s minimum wage is $16.00 an hour.

How soon can I take home my tips?

You can take home cash tips immediately.⁸

When the tip was made with a credit card payment or debit card payment, you are entitled to the full amount of the tip on the next regular payday. If the credit card company imposes any merchant fees or credit card processing fees, the employer is not allowed to deduct those from your tip.⁹

The employer also has a legal responsibility to

1. keep records of any of these tips and
2. make the records available to the California Labor Commissioner’s Office.¹⁰

California employers can require tip pooling.

What is considered a tip?

Under California tip and gratuity law, a valid tip is a form of gratuity

1. that is voluntarily left for you by a customer and
2. that is over and above the cost of what the customer bought.¹¹

Tips are your sole property.¹²

This means that tips are not technically a part of your wages. However, you still have to report them as taxable income. Plus tips will not impact your overtime rate because they do not change your regular rate of pay.¹³ 

Employees that typically receive tips include:

• waiters and bussers/busboys
• hosts
• valet attendants
• bartenders
• doormen
• housekeeping staff
• movers
• delivery people
• dancers
• spa and salon workers

What about service charges?

Mandatory “service charges” are not tips in California because they are not voluntarily given by the customer. These service charges are sometimes imposed on patrons by employers. These charges also go to the employer, who then has discretion in how they are distributed. (Note that certain municipalities require service charges to go to you directly.)

If proceeds from mandatory service charges do end up going to you, it would not be in the form of a tip or gratuity. Employers have to withhold Social Security and Medicare (FICA) tax on service charges. Also unlike tips, service charges can count

• towards minimum wages and
• how overtime is calculated.

“Double tipping” – where you receive both tips as well as service charges – is legal in California.¹⁴

What are the penalties for a tip or gratuity violation?

Employers who violate the tip and gratuity sections of the state’s wage and hour laws are guilty of a misdemeanor offense. Penalties include:

• a fine of up to $1,000,
• up to 60 days in jail, and
• restitution to you for the tips that were taken.¹⁵

How can I fight back if I do not get my tips?

If you believe that your employer is keeping tips or illegally interfering in your tipping pool, you can file a wage claim complaint with the Labor Commissioner’s Office (the California Division of Labor Standards Enforcement (DLSE)). This will trigger an agency investigation.

The case will then either be:

• referred to a conference (to determine if a hearing is necessary),
• referred to a hearing (where the parties testify under oath and be recorded), and/or
• dismissed.

If there is a hearing, afterwards the Labor Commissioner will serve an ODA (Order, Decision, or Award).

The ODA is appealable, which will then trigger a traditional civil trial. Note that the DLSE can represent you if you cannot afford counsel.

If you win the trial, the court will enter a judgment against your employer. If you are no longer working for the employer, this judgment can include waiting time penalties.

Alternative ways to recover your tips

• Bring a lawsuit for civil penalties under the Private Attorneys General Act, also known as a PAGA claim. This is a multi-step process, and the statute of limitations is one year from the non-payment of tips.
• File a lawsuit under California’s Unfair Competition Law (UCL) for a fraudulent business practice, including violating the California Labor Code. The statute of limitations is four years after non-payment of tips.
• File a lawsuit against the employer for conversion, which is unlawfully interfering with your property. The statute of limitations is three years after the non-payment of tips.
• File a lawsuit for breach of contract. The statute of limitations is two years after non-payment for oral contracts, and four years after non-payment for written contracts.¹⁶

Note that employers may not retaliate against you if you ask for your tips or bring a legal action to recover your tips. (Retaliation includes firing, demoting, punishing, or otherwise mistreating.) If your employer retaliates, you can file a discrimination/retaliation complaint with the Labor Commissioner’s Office or else file suit.

What is the difference between tip pooling and tip sharing?

Tip pooling is when you and your co-workers “in the chain of service” combine your tips, and only you and the other “chain of service” co-workers receive a portion of the tip pool.

Tip sharing is when you give a percentage of your tips to back of the house staff who do not get tips, such as

• kitchen staff,
• dishwashers,
• cashiers,
• cooks, and
• janitors.

Additional resources

For more information, refer to the following:

• Change in law allows pooling of tips in California, aiding cooks, dishwashers – Article in the San Francisco Chronicle.
• Tips and Gratuities – Overview of California law by California Department of Industrial Relations.
• Tips on Tip Pooling – Guide by the California Employers Association.
• Restaurant employees given $61,000 after managers caught dipping into tip pool, federal agency says – Article in USA Today.
• Do You Know Where Your Tip Money Is Going? – Article in Eater.