Los Angeles Improper Deductions, Tip Splitting, Commissions, Piece Rate

California employees are protected by some of the strictest labor laws in the country. Employees who know their rights can ensure that their employers cannot take advantage of them or unlawfully withhold proper wages. There are many regulations outlining what employers can and cannot do concerning wage arrangements, such as tip splitting, commission, and piece rate.

If you believe that your wages have been incorrectly managed, calculated, or dispersed, or if you believe that your employer is guilty of improper deductions to your paycheck, talk with a Los Angeles employment lawyer and labor law attorney.

Employment and Labor Law Representation in Los Angeles

Park APC has a strong history of providing comprehensive legal guidance to Los Angeles, California employees for wage disputes regarding wage theft, improper deductions, and other employment and labor issues. With extensive experience handling complex labor laws, our team has successfully represented clients who have been unfairly compensated for their work.

If you believe that your employer has withheld improper deductions from your paycheck, or else believe that the tip splitting, commissions, or piece rate wage arrangements in place at your job are not fairly compensating you for your work, hold your employer responsible with the help of a qualified and skilled Los Angeles employment lawyer.

Improper Deductions

California labor laws maintain strict regulations regarding employee paycheck reductions. This offers protections for employees against unfair or improper deductions. State labor laws place a strong legal emphasis on the employee’s right to receive the wages that they have rightfully earned. Generally, only the following items constitute a proper deduction that can be made from an employee’s paycheck:

• Taxes. Federal and state income taxes, Social Security, and Medicare taxes are all required to be withheld by employers, and this must follow applicable tax laws.
• Court-ordered deductions. Employers must comply with any court order to garnish an employee’s wages for required payments such as child support or spousal support.
• Voluntary deductions. An employee may voluntarily agree to certain deductions, such as retirement plans, health insurance premiums, or other withholdings.
• Pre-authorized deductions. In some cases, an employee may sign consent to have a set amount withdrawn from their paycheck for items such as paying for a uniform or equipment on a payment plan or a repayment of a wage advance.

Any deduction that is not legally required or authorized with written consent by the employee constitutes an improper deduction. They include, but are not limited to: 

• Deductions for mistakes. Employers cannot deduct earned wages for mistakes made at work. Employers must pay employees agreed-upon wages for all work completed, regardless of the quality of the work or the satisfaction of the employer.
• Fees for breakage. Employers cannot charge employees for breaking company property, tools, or equipment.
• Reimbursement for cash shortages. If there is a cash shortage, loss, or other discrepancy in the register, employers cannot deduct wages from an employee’s paycheck to cover the loss, even if they are responsible, without written consent from the employee.
• Other deductions. Employers cannot deduct the cost of provided uniforms or tools from a paycheck if doing so would cause the employee’s wages to fall below the minimum wage.

If your employer has illegally withheld earned wages from you for any reason, contact a skilled attorney right away.

Tip Splitting

Many employees, such as servers and bartenders, earn the bulk of their living off gratuity. Others earn additional income on top of their work through tips. For those in the customer service sector, such as restaurants, bars, and coffee shops, tips and gratuities comprise a significant portion of their income.

For clarity, state labor codes define both “tip” and “gratuity” as “any money that has been paid, given to, or left for an employee by a patron of a business over and above the actual amount due to the business for services rendered.” California laws protect this income on behalf of employees and have strict regulations for what can and cannot be done with them. While many employees work in an environment where they are the only ones to physically handle the money, many other establishments set up policies to allow tips to be collected and redistributed evenly among all customer-facing staff.

Tipping Out

Tipping out refers to the act of distributing tips between tipped employees. This is a necessary practice because not all of those who would otherwise receive a tip have access to taking payments. With tip-out arrangements, those who process payments, such as servers and bartenders, will collect the tips and then distribute them among other staff, such as bussers, kitchen staff, and hosts, at the end of their shift.

Technically, from a legal standpoint, all tips belong to the employee to whom they were given. However, employers can legally establish tip-sharing policies, such as tipping out, as a requirement of the job, provided they are following all other tipping laws. Depending on the configuration of the staff, style of service, and volume of sales, employers may choose between two main tip-out types:

• Percentage of tips. In this tip-out structure, tips are distributed among a service team based on an assigned percentage of the total tips. Each percentage is determined by the level of responsibility that each service member has. For example, a server may collect all tips from customers, then divvy out 10% of the total tips for the night to the bartender, 7% to the busser, 5% to the food runner, and another 3% to the host.This structure helps to spread the loss of low-tipping tables out among all the service staff and provides consistency from shift to shift. Unfortunately, it also runs a risk of dishonesty, as it can be easy for servers to hide cash tips, shorting other staff.
• Percentage of sales. In this tip-out structure, tips are distributed among a service team based on the percentage of the overall sales. In other words, the 10% given to the bartender at the end of the night would be 10% of the sales handled by the server, rather than 10% of the tips received.This structure can reward the individual effort of a server, as they would get to keep any tip surplus beyond the base percentage of what is owed to the other staff. However, it also means that the server bears the brunt of low-tipping tables, as the rest of the staff are still owed their percentage of the sales.

While most employees are familiar and comfortable with this system, there is a lot of room for error. Many employees end up suing their employers over misallocating tips or encouraging harmful practices among staff.

Tip Pooling

Tip pooling is an alternative to traditional tipping out in which tips are pooled together and then distributed based on hours, points, or a combination of the two. During a shift, all the tips collected in total are added together and then divided in one of three ways: 

• Hours pool. The sum total of tips received by all staff during a set time, such as a day or a week, is divided by the total number of hours worked by all staff in total during that time. Each tipped employee is then given the tip/hour amount based on how many hours they worked.For example, $500 in tips for the week, divided by 100 total hours worked by staff equals $5/hour. A barista who worked 15 hours that week would receive $75.
• Points pool. Each service position is given an assigned point value based on the level of responsibility. Bartenders and servers, for example, are given a higher point value than bussers or hosts. After the sum total of tips for the day or week is calculated, it is divided by the total number of points for all employees worked. Then, each employee is paid this result, the tips per point, for each point in their position.For example, 2 servers at 10 points each, plus 1 bartender at 8 points, and 1 host at 2 points would be 30 points total. $150 in tips divided by 30 points is $5/point. One server would get $50 (10 points x $5).
• Points and hours pool. Each employee has their hours multiplied by their assigned point value for their position. Then, all the totals are added up. Tips are distributed according to each employee’s point value x hours worked x tips per hour. This structure has the most complexity but offers businesses the most flexibility.For example, a server (10 points) works 8 hours. 10 points x 8 hours = 80 points. The unit tip/hour will be smaller to accommodate a higher number of points all around.

Pooling tips can ultimately be the most equitable structure, encouraging teamwork throughout the whole team. However, employers must keep careful records of all distributions and how they were calculated. Otherwise, mistakes can easily be made, leading to improper payouts. If you believe that your tip wages have been inaccurately calculated or unfairly distributed, speak with one of the Park APC lawyers to discuss the details of your case.

Splitting Tips With Non-Customer Facing Employees

It’s important to understand that all tip-pooling and tipping-out policies must follow the California Labor Code. This means that gratuity should only be split with employees who were directly involved in providing services to customers. It is illegal for an employer to force an employee to share tips with anyone else, such as managers, supervisors, business owners, back-of-house staff, or administrative personnel. Tip pooling should only be used to ensure that customer-facing employees are fairly compensated for their efforts in providing customer service.

Penalties for Gratuity Violations

Violating tip and gratuity regulations in California’s wage and hour laws is a misdemeanor offense. Employers who are guilty of violations face penalties, including: 

• Up to $1,000 in fines
• Up to 60 days in jail
• Restitution owed to the employee from whom the gratuity was taken

Employees who believe that they’ve been deprived of earned tips can file a case against their employer. A Los Angeles employment and labor law attorney can help you recover damages. The Labor Commissioner’s Office will investigate the claim, issue a hearing if necessary, and finally serve an ODA (Order, Decision, or Award).

Commission

California law regards any payments made to an employee based on the sale of a product or service as commission. As with other wage arrangements, California has specific regulations for implementing a commissions-based pay system. This is to ensure that all employees are treated fairly and have their rights protected concerning their compensation.

Primarily, California state laws governing commission payments require that: 

• Employees are paid any commission no less than twice a month.
• Employers provide a written contract for commission-based employees that details all calculation and commission-paying methods.
• Employees receive a signed copy of their commission agreement.
• Employees receive a written statement showing all commissions earned and owed.

Under the Fair Labor Standards Act (FLSA), commission payments are usually considered part of an employee’s regular wages. As such, commissions-based employees must be paid at least the minimum wage for all hours worked. Additionally, payment of commission must be included when calculating an employee’s overtime pay rate.

If your employer is refusing to comply with commission pay regulations, and attempts to resolve the issue through communication with your employer have not been successful, speak with an experienced employment attorney right away. They can help you navigate filing a wage claim with the California Division of Labor Standards Enforcement (DLSE).

Piece Rate

A piece-rate wage arrangement is one in which employees are paid a fixed amount per unit produced or action completed. Auto repair shops are one of the more common examples of this pay structure, but the trucking industry, call centers, and manufacturing are further examples.

Piece-rate law falls under the Federal Labor Standards Act (FLSA), but the California Labor Code has its own regulations as well.

To comply with California piece-rate law, employers must ensure the following:

• Employees must be paid the minimum wage or higher for all hours worked, including nonproductive time.
• Employees must be paid for rest and recovery (break) periods.
• Employees must be paid overtime at the proper rate.
• Employees must be provided with accurate wage statements.

Nonproductive Time for Piece-Rate Wages

Federal labor laws require that all employees average a minimum wage rate for all time worked. However, California’s labor codes require employees to be paid the minimum wage or higher for EACH hour worked, separately. This means that if an employee, such as an auto mechanic, spends six hours of his work day working on repairs but spends one hour in a team meeting and another hour waiting for customers, California requires employers to pay the employee separately for the nonproductive time spanning those two hours of non-repair work.

This requirement does not consider what piece rate the employee was earning for the productive time, even if it were to average out to a much higher rate than minimum wage. For example, if the auto mechanic earned $200 each for two repairs completed during his shift, he would have earned $400 in total during the six hours of productive time. For the 8-hour shift, this amounts to $50/hour, which is much higher than minimum wage.

While this satisfies FLSA law, California views productive time and nonproductive time separately. This means that the mechanic would have earned $67/hour for the productive time but $0/hour for the nonproductive time. To be compliant, the auto shop would have to pay him $15.50, the current minimum wage, for each of the two nonproductive hours, for a total of $431 for the day.

Rest and Recovery Pay for Piece-Rate Wages

One of the bigger changes to the laws regarding piece-rate compensation is the addition of compensation for rest and recovery periods. Rest and recovery periods are mandatory under California labor regulations for all employees. Under current regulations, employees of all types are entitled to one 10-minute break for all shifts that are between 3.5 to 6 hours long. For shifts between 6 and 10 hours, this requirement doubles to two 10-minute breaks or 20 minutes in total.

Piece-rate compensation regulations require employers to compensate for mandatory rest and recovery periods separately and in addition to any piece-rate compensation that employees receive. In other words, employers cannot claim that the rest and recovery compensation is included in the piece-rate compensation paid to the employee, regardless of how the rate is determined.

The actual rate of rest and recovery compensation shall be the average hourly rate of the employee, determined by dividing the total compensation for the workweek by the total hours worked during that time. The rate should not include time spent in rest and recovery periods or any premiums paid for overtime worked. Additionally, if the average hourly rate determined was to fall below the minimum wage, the employer should pay the applicable minimum wage instead.

Overtime for Piece-Rate Wages

The California Labor Code entitles employees to at least 1.5x their regular rate of pay for overtime. For piece-rate workers, the “regular rate” is determined by dividing the total earnings for the week by the total hours worked, including overtime hours. For each hour of overtime worked, the employee is entitled to 1.5x this calculated rate.

The Importance of Documentation

When upholding your rights as an employee, California labor laws are very clear regarding what you should be earning and how an employer can and cannot treat you. However, proving that your employer has breached your contract or violated applicable labor laws can be difficult to demonstrate without proper documentation.

For this reason, it is highly recommended that you keep careful records of all wages, both earned and received. Keeping careful records will help you discover whether you have been fairly compensated for all wages earned. Should you discover that an employer has either failed to pay what is owed or has in some way withheld or taken wages, you can use those records as evidence.

When gathering relevant paperwork, make sure to include pay stubs, employment contracts, commission agreements, and any other documents that might demonstrate a discrepancy between the wages you were paid and the wages you had earned.

FAQs

Q: Is Piece Rate Legal in California?

A: Paying employees on a piece-rate basis is completely legal in California. However, it is nevertheless subject to other labor laws and regulations, including minimum wage. If you are paid by the piece, or per item/unit of whatever you produce, rather than an hourly rate, your compensation for time worked should average out to minimum wage or higher. Additionally, you should be paid separately, apart from your piece-rate compensation, for breaks and other nonproductive time at work.

Q: Can Employers Make You Split Tips?

A: A California employer can require their employees to split tips without breaking any state labor laws. Also known as “tip pooling,” splitting tips is a legal practice within a business, so long as doing so would not bring someone below minimum wage. Additionally, employers are prohibited from allowing tips to affect the employees’ hourly wages. This is known as “tip credit” and is illegal. Employers owe their employees the legal and agreed-upon wage, regardless of additional tips received while working.

Q: Can an Employer Deduct Wages for Mistakes?

A: No. An employer cannot legally deduct wages from an employee. An employee’s wages are protected from any deductions on account of:

• Employee mistake
• Accident
• Breakage or loss to company property, including equipment
• Cash shortages

In fact, outside of income taxes and court-ordered payments, any other deductions from a paycheck must be authorized in writing by the employee.

Q: Can a Restaurant Force You to Tip Out in California?

A: From a technically legal standpoint, any tip given to an employee belongs to the employee and cannot be taken by either the employer or another employee. However, an employer can legally make a policy requiring employees to pool tips or tip out to other staff as a requirement of the job. Therefore, while a restaurant cannot force you to tip out, if tipping out is an expectation of the job, they can legally fire you if you choose not to.

Your Los Angeles Employment and Labor Lawyers

It is challenging to undertake any employment law matter without the guidance of an experienced Los Angeles labor attorney. The team at Park APC has extensive experience representing clients who have been unfairly and unlawfully treated at work.

If you’ve had wages taken from you, unlawfully withheld, or grossly miscalculated, it is important that you hold your employers accountable. If you are ready to initiate legal action, partner with Park APC today by contacting our office and scheduling a consultation.