This is an informational piece on the difference between tips, gratuities and service charges.
Tips and Gratuities
The Department of Industrial Relations uses the words "tip" and "gratuity" interchangeably - meaning that they have the same definition: "Money a customer voluntarily leaves for an employee over the amount due for the goods sold or services rendered." Tips are the sole property of the employee and are never to be shared by owners, managers or supervisors - even if they performed some services to the customers. An employer can require a tip sharing or tip pooling program, but cannot share in the pool themselves. Additionally, an employer in California must pay employees at least the hourly minimum wage regardless of how many tips are collected. Tips are not considered a portion of hourly wage.
A service charge is different from a tip. Again, a tip is a voluntary amount left by a customer. In contrast, a service charge is a mandatory charge required of the customer for some special service or possibly because of the size of the party. A service charge is not the property of the employees. Rather, any employer can, at its own discretion, determine the distribution of the mandatory service charge which will be included in the employee's hourly rate of pay for calculating overtime payments.
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