Disclaimer: We’re not a law firm and this article isn’t legal advice. Always consult qualified counsel for your situation.
If you run a California restaurant, tipping rules can feel complex—especially around minimum wage, tip pooling, service charges, and credit-card fees. Here’s a 2025-ready guide that’s practical and easy to act on.
California has one of the highest minimum wages in the United States. Employees in this state enjoy a minimum of $16.50 an hour as of 2025, more than double the national minimum of $7.25 per hour.
Can an employer use tips to make up part of an employee's wages? Under federal law, this would be the case. Federal law states that employers can take a tip credit, which allows tips to account for a portion of the person's minimum wage.
However, where state law offers more employee protections than federal law, it overrides it. California state law forbids tip credits, so employers must ensure they pay the minimum wage without any sort of tip credits.
While employers cannot use tips to make up wages, they can implement a tip pool. Tip pooling ensures that employees who may normally receive fewer tips, such as hosts or table runners, get a better portion of the available cash.
California tip pooling laws state:
The California Department of Labor Standards Enforcement suggests that 80% of tips are shared equally among waitstaff, 15% to bussers, and 5% to bar staff. These are guidelines, and businesses can choose their own rates as long as they are fair.
Tip sharing is similar, but employees share tips directly with other employees. This approach is hard to record and track, which can cause issues for owners as all tips must be legally recorded and reported. Tipping software is a great solution for managing both tip pooling and sharing, especially because owners can opt for digital payouts to help employees access their tips more easily.
California's unique labor laws, including specific rules for tip pooling and minimum wage, require operators to be both precise and efficient. Modern solutions like TipHaus are essential for navigating these complexities and improving business operations.
David Tingle from Brigantine Restaurants, a property with over 300 employees based in San Diego, California, shares how daily digital tip payouts transformed their business. By switching to TipHaus, they reduced on-site cash reserves by 75% and eliminated the need for nightly cash envelopes and armored trucks. Their staff loves the secure, same-day payouts, and management loves the streamlined operations.
Watch the full video to learn more.
As Stone Brewing, based in Escondido, California, grew to over 300 employees, manual tip management became a nightmare of errors and lost time. By integrating TipHaus with their GoTab POS, they were able to:
Read the full case study to see how they modernized their tip management.
What is a service charge? Any restaurant can add a mandatory service charge to a check. This could be an additional charge for a special event, large groups, or a catering surcharge.
However, it's not a tip, and employees have no right to this money. Mandatory service charges are part of the restaurant's revenue.
A restaurant owner can choose to share service charges among employees. But if they do, they must record them as additional wages, not tips. This means they get taxed as wages, plus other deductions like Social Security and Medicare.
The best practice is to note on a check that a service charge is not a tip. That way, the employee may still receive a tip during the transaction. However, there's no law that demands this.
Can owners take tips to cover card fees? In some states, restaurants can pass a portion of a credit card processing fee onto the employee — if the employee receives a tip. The tip and the charge must occur in the same pay period (usually one month), and employees must be notified that this will occur.
In California, however, the law forbids employers from passing on credit card processing fees to tipped employees. Collected tips belong to the employee and cannot be reclaimed for any type of operational cost.
Many restaurant owners may have misconceptions about tipping in California because it differs from the federal norms. The minimum wage is much higher, and there is no option to take a tip credit like in many other states. Tips cannot be used to cover restaurant costs, but tip pooling is legal when handled fairly.
When you understand how to treat your employees fairly, you're more likely to retain them for longer. Getting to grips with recording tips received and distributing them in a reasonable manner can help you run a successful business that attracts the best type of attention — happy diners and employees.
You can learn more about tipping in California and other states on the U.S. Department of Labor resource site and by working with experienced experts like TipHaus. We provide tipping software for restaurants nationwide, so we understand the intricacies of state vs. federal law and how to ensure your tipped employees are treated fairly — while still turning a profit.
At TipHaus, we understand how critical compliance is for restaurant operators. That’s why we’ve built features like automated tip reporting, fair distribution tools, and precise record-keeping into our platform. These tools not only help you adhere to labor laws but also create a transparent system your staff can trust.
Start your free trial and see for yourself how the right platform can take the complexities out of tipping in California.
Automate calculations, ensure transparency, and pay tips daily without spreadsheets or disputes. Book a demo to see TipHaus in action and kick off your free trial today!
