Leave it to a lawyer to answer a question with a question, but the question “are tips considered wages” can only be answered with another question – “For what purpose?” In this blog we will examine common scenarios involving tips that lead to the question being asked, “are tips considered wages?”
What Exactly Do You Mean By “Tip”?
It is important to begin our analysis by defining what a “tip” actually is. Under California law, a “tip” or a “gratuity” is money “that has been paid or given to or left for an employee by a patron of a business over and above the actual amount due the business for services rendered or for goods, food, drink, or articles sold or served to the patron.” California Labor Code §350.
Are Tips Considered Wages for the Purpose of Minimum Wage?
No. In California, an employer cannot use an employee’s tips as a credit towards its obligation to pay the minimum wage. California law requires that employees receive the minimum wage plus any tips left for them by patrons of the employer’s business. Labor Code Section 351.
Are Tips Considered A Part of Wages for Determining the Proper “Overtime” Rate?
No. Since tips are voluntarily left by the customer of the business and are not being provided by the employer, they are not considered as part of the regular rate of pay when calculating overtime.
Are Tips Considered Wages for the Purpose of Taxable Income?
According to the Internal Revenue Service, all cash and non-cash tips received by an employee are income and are subject to Federal income taxes. All cash tips received by an employee in any calendar month are subject to social security and Medicare taxes and must be reported to the employer.
Contact Akopyan Law Firm A.P.C. for Advice
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