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October 08, 2010
Employee Deductions Involving Gratuity

Cheryl Orr and Heather Sager discuss employee deductions involving gratuity in a BLR webinar entitled ‘Wage Payments: What You Can and Can’t Legally Deduct from Employees’ Pay’. They provide information regarding the ability of an employer to make deductions from an employee’s pay for reasons involving gratuity.

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Can an employer deduct tips or gratuities from the employees’ paychecks?

  • What is a tip? A tip is money a customer leaves for an employee over the amount due for good or services rendered. The tips belong to the employee not the employer.
  • Hence, generally no deductions can be made by the employer for tips that the employee receives. No withholdings are permitted that are related to tips. A mandatory service charge is not a tip. Gratuities cannot be deducted from an employee’s paycheck.
  • There are state law differences. However, generally, tips can be included as income.

Also, can an employer mandate tip pooling? This varies state by state. An employer cannot mandate tip pooling. What about tip jars? Tip jars are not for one particular employee and are not the same as tip pooling. With tip jars, the money is provided for the overall establishment and does not belong to one particular person.

Cheryl D. Orr, Esq. is a partner and co-chair of the national Labor and Employment Practice Group at Drinker Biddle & Reath LLP (www.drinkerbiddle.com). She concentrates her practice on defending employers against FLSA collective actions and state and federal wage and hour class actions. Heather M. Sager, Esq. is also a partner in the Labor and Employment Practice Group at Drinker Biddle & Reath LLP. Sager focuses her practice on management-side representation in collective and class actions, with particular experience in wage and hour litigation under state and federal law, including representative claims brought under California Business & Professions Code Section 17200.

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