Tips are a trending topic in the news. The “One Big Beautiful Bill Act”, signed into law on July 4, 2025, created a new federal income deduction for tip earnings which raised awareness around tips. Now, California has passed a statute permitting the state’s Labor Commissioner to pursue complaints about unpaid tips. Previously, the Labor Commissioner did not have explicit authority to issue and recover citations against employers who violate laws regarding employee tips.
Here is what employers need to know to make sure they successfully avoid and defend against any tip-related complaints.
Payment of tips: Labor Code section 351 commands that gratuities paid, given to, or left for an employee or group of employees is their property. Employers are prohibited from collecting, taking, or receiving any portion of a tip, or using tips as a credit against an employee’s wage. Tips made by credit card must be paid to employees no later than the next regular payday.
Tip Pooling: Pooling tips and distributing them to a group of employees is permitted in California. The key to tip pooling is making sure that the pool participants are reasonably defined and that the formula for distributing the pool is fair and reasonable. With respect to eligibility, managers, supervisors, or other “agents” of the company cannot participate in the pool. Generally, only employees that are in the chain of service should be included in the pool. For example, in a restaurant the waiter, busser, and...
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