My employees receive tips on credit cards. Can I deduct credit card fees from those tips?

Posted over 2 years ago. Applies to California, 1 helpful vote

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No. Tips or gratuities are amounts voluntarily left for employees by customers that exceed the amount due. Payment of gratuities must be provided by employers to employees by the next regular payday. Complete records of all gratuities received should be maintained by the employer. California Labor Code section 351 prohibits an employer from keeping any portion of employees’ tips. But, employers may require employees to tip pool and split gratuities with other employees in certain circumstances – not all.

Keep in mind that although you must allow your employees to keep all of the tips left for them, you may not count those amounts towards their wages to avoid legally required payments, such as minimum wage. Similarly, but more helpful for cash strapped employers, tips should not be considered when calculating overtime wages. Overtime should be calculated only on an employee’s regular rate of pay.

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Wolk & Levine, LLP

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Related Topics

Employee wages

Employee wages are set by the employer but must meet the federal or state minimum wage. Employers must withhold, report, and pay employment taxes.

Employee wages and tips

Employee tips may be counted toward the minimum wage in certain jobs where wages are otherwise below the legal minimum. Tips are taxed the same as wages.

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