A few days ago I presented a webinar with Eli Freedberg, a colleague from our firm’s New York office, entitled Tipping Tips: Avoiding Lawsuits in New York and California. For once, California law is not the most complicated law in the land.

While New York has a very intricate wage order that became effective this year and has had a profound impact on tipping practices in that state, the law on tipping in California has no analogous requirements. Even so, this blog post will highlight three issues that often raise questions for hospitality employers in California.

First, it is very important to use the correct term: tip/gratuity versus service charge. A tip or gratuity is a voluntary payment by a patron that belongs to the employee; it is not included in the employee’s regular rate of pay for overtime purposes. In contrast, a service charge is a non-voluntary payment by a patron that is paid to the employer, and may or may not be shared with the employee. Any portion of a service charge provided to the employee must be included in the employee’s regular rate of pay for overtime purposes. So if your business adds a charge to guest checks for parties of 8 or more, for bottle service, or to banquet checks, make sure to use the term “gratuity” if the charge is a suggested amount that can be changed. In contrast, if the amount is mandatory without exception, then use the term “service charge,” and make sure you include that charge in the regular rate.

Second, the New York wage order has many requirements intended to avoid confusion for the guest. That same theme applies in California in order to avoid unfair business practice claims. For example, a blank tip line on a guest check when a fixed gratuity has already been added may cause confusion as to whether the tip has been included. Instead make sure the guest check is stamped “gratuity included,” or the guest check line reads “additional gratuity,” and that your service staff is trained to remind guests when a tip is added.

Finally, some states create a legal distinction between tip pooling and tip sharing, but California does not. Tip pooling involves gathering all tips given to service staff and distributing them according to a pre-set formula. Tip sharing (also called tip splitting) involves a server sharing tips with others in the chain of service. Both are legal in California and can be required. While New York limits those who can participate in a tip pool to those who provide “direct table service,” California is more lenient and only requires that the individuals participate in the “chain of service.”

Of course, there are still legal issues that come up with tips, but overall, we have less trigger issues in California than in New York (at least for now…..)