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 dishwasher may all participate in the pool. The restaurant manager typically should not participate. When it comes to distributing the tip pool, it should be paid out in a reasonable manner that reflects employee service contributions. For instance, the tips could be distributed based on hours worked or percentage of sales.
On July 30, 2025 Governor Newsom signed SB 648 that amended Labor Code section 351 to give the Labor Commissioner power to investigate employee complaints about tips, and issue citations or file a civil action against an employer for taken, withheld, or late gratuities. While it has been against the law to take employee tips, or run an unfair or unreasonable tip pool, employees can now file complaints with the Labor Commissioner and have another option for pursuing withheld or unpaid tips.
With the increased federal attention to tips, and increased access for seeking unpaid gratuities, employers should check their tip practice. Make sure that tips are being paid to the correct employees on a timely basis, and that tip pool eligibility and distribution is fair and reasonable. If you have any questions, please contact your favorite CDF attorney.
