Bars, Meals and Breaks, Restaurants, Tips

RESTAURANTS AND BAR LABOR ISSUES

All general labor laws apply to restaurants and bars.  However, a few of those laws have raised some special issues for them.

In the year 2000, the legislature amended the gratuity statute, Labor Code §350.  It clarified how the house and servers handle tips.

The house may not share tips with servers (Labor Code §351), and the employer must track all tips that it collects for employees (Labor Code §353).  An employer cannot credit tips against wages it has agreed to pay to servers, and servers must earn at least minimum wage.

However, an employer may require tip pooling.  The tip pool arrangement must be fair and reasonable.  Only those who are in the chain of service can be in the pool.  For instance, an employer cannot require servers to include cooks and dishwashers in the pool.

Finally, tips are taxable income.  The IRS now requires all tips to be declared.  Technically, all persons who receive tips, or a share of the tips, must report it as income.  Unfortunately for certain servers, some employers allocate the entire tip to the waiter or waitress even when a portion of the tip is shared with others.  In that case, the server appears to the IRS as the only person who earned the tip.  In contrast, the employer should report shared tips and should tell the IRS how much each person in the chain of service received from the tip.

Meal periods and rest periods are sometimes a problem in the serving industry.  Typically, a server does not like to leave tables for meal periods and breaks when a tip is due from those tables.  For that reason, some servers like to skip breaks.  A few years ago, the California Supreme Court clarified the laws in that area.  (Brinker Restaurant Corporation v. Superior Court, (2012) 53 Cal.4th 1004)

In Brinker, the Supreme Court said that employers have a duty to “provide” meal periods for its qualifying employees.  The plaintiffs had argued that employers had to “ensure” that employees got meal periods.  The Court declined to place that burden on employers and found that an employer only needed to provide an opportunity to take a meal break.

In the Brinker case, the California Supreme Court also clarified the law pertaining to rest periods.  According to the regulations, employers must “authorized and permit all employees to take rest periods.”  The Brinker Court defined the meaning of “authorize” in that context.  It said that an employee is entitled to a 10 minute, uninterrupted rest period if the employee’s shift is at least 3.5 hours.  An employee is entitled to a second rest period if his or her shift is at least 6 hours and is entitled to a third rest period if the shift is at least 10 hours long.

Employees can elect not to take their meal periods and rest periods, but allowing them to not take them can create the appearance of violations.  One method for guarding against that appearance is to keep a break log.  If the employee did not take one, the employee should explain why not on the log.  The downside of keeping a break log is the written log could potentially be used to prove the employee’s case, but, on the other hand, good management techniques can address potential problems before they become serious.

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Tips

Employer Required Tip Pools: Are they Legal? How are they taxed?

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Are tip pools legal when required by an employer?  The quick answer to that question is yes.  But under both California law and federal law, the pool must meet certain legal requirements.

As a general rule tips are optional, freely given payments for service above and beyond the cost of the products being sold.  The customer has the complete right to set the amount of the tip and may choose not to tip at all.  The employer should have no say in the amount of the gratuity.

California Labor Code §§350-56 lays the legal foundation for tip pool requirements in California.  The law forbids the employer from taking or sharing in tips (Labor Code §351), and employers must track all tips that they collect for employees (Labor Code §353).  Employer mandated tip pooling is legal, but the house cannot share in the pooling arrangement.  The tip pool must be fair and reasonable.  Only those who are in the chain of service can be in the pool.  For instance, an employer cannot require servers to include cooks and dishwashers in the pool.

Tips are taxable income.  When tips are shared, who must pay the tax?

Technically, all persons who receive tips or a share of the tips must report it as income.  However, a common practice is for the employer to allocate the entire tip to the server who waits on the table.  In that case, even when the server shares the tip, the server is the only person who pays tax on the entire tip.  The employers records do not show any other employees in the service chain as persons who receive tips, even though they actually do in tip pooling arrangements.  Presumably, those employees who share the server’s tip as part of the chain of service escape tax liability because the employer’s records do not show them collecting any tips.  In that case, the server unfairly pays tax on the portion of the tip that he or she did not actually take home.

 

S. Ward Heinrichs, Esq.
BACKSTROM & HEINRICHS
Attorneys at Law
A Professional Corporation
4565 Ruffner Street, Suite 207
San Diego, CA 92111
(858) 292-0792
(858) 408-7543 (fax)

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