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Joseph
Joseph, Lawyer
Category: California Employment Law
Satisfied Customers: 4868
Experience:  Extensive experience representing employees and management
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Were a CA valet parking company that includes itemized gratuity

Customer Question

We're a CA valet parking company that includes itemized gratuity in client agreements. When disbursing to employees, we plan to credit 80% to offset our employer payroll expenses:

6.20% Federal Social Security Tax
1.45% Federal Medicare Tax
0.60% Federal Unemployment Insurance
5.60% CA State Unemployment Insurance
0.10% CA State Employee Training Tax
7.31% CA State Worker’s Compensation Insurance
1.50% SF City Business Tax
22.76% Total

Is this legal?
Submitted: 2 years ago.
Category: California Employment Law
Expert:  Joseph replied 2 years ago.
Hello and welcome to JustAnswer.

I'm sorry to hear about your situation and hope I can help.

Since gratuities are considered wages, you can deduct the same percentages from gratuities that you would deduct from the employees' other wages for payroll purposes.

Unfortunately, you canot require employees to pay for their own workers' compensation insurance, so you cannot make that deduction from the employees' gratuities.

Additionally, you cannot make employees pay for the tax on your business by the City of San Francisco.

However, every deduction except the Workers' Compensation Insurance and business tax are legal to deduct from the employees' gratuities.
Customer: replied 2 years ago.

Sorry. Maybe my question wasn't clear. If our company has a $40 line-item charge on client invoices for "Gratuity" can I legally payroll my staff 80% of this amount ($32) to compensate for my employer payroll taxes paid?


 


Are there any laws that prevent me from doing this?

Expert:  Joseph replied 2 years ago.
No, unfortunately, gratuities are considered part of wages, so you could not make deductions from the gratuities for payroll taxes, just as you couldn't make deductions from employees' tips for payroll tax purposes.

This is stated in California Labor Code Section 351 below:

"No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company. Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment."
Joseph, Lawyer
Satisfied Customers: 4868
Experience: Extensive experience representing employees and management
Joseph and 3 other California Employment Law Specialists are ready to help you
Expert:  Joseph replied 2 years ago.
Since I have now answered your question satisfactorily, could you please improve your rating of the service I've provided.

Thanks and best of luck!
Customer: replied 2 years ago.

I'm trying to rate you "okay" but clicking on the icon doesn't seem to register.


 


What I need is a legal remedy to solve the problem of losing $.20 of every dollar the customer pays us earmarked for gratuity.

Expert:  Joseph replied 2 years ago.
Could you please try clicking again. Thank you. Unfortunately, the only thing I can suggest would be to increase your charges to the customer for the service and/or add a service fee.

Unfortunately, if you state that the amount is for gratuity it becomes part of wages and you cannot make deductions from it, just as you couldn't deduct payroll expenses from an employee's regular wages.
Customer: replied 2 years ago.

Hello Joseph:


 


Item #6 in link below from the CA Dept. of Industrial Relations clarifies with regard to Labor Code Sec. 351 that money paid by the client to California Parking is in the form of a “mandatory service charge” is NOT considered a tip or gratuity. Our policy of crediting 80% does not violate state law.


 


http://www.dir.ca.gov/dlse/FAQ_tipsandgratuities.htm

Expert:  Joseph replied 2 years ago.
Yes, as I mentioned above, as long as the payment is for a 'service charge' and not a gratuity, it does not violate state law to deduct from tthat amount.

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