California revisits gratuity guidelines

The California State Legislature will have 2,495 new bills to consider in upcoming sessions. Numerous proposals, filed on or before the state’s Feb. 17, 2017, deadline, introduce regulations designed to protect contractors in what some refer to as the “gig economy.” Examples of such contractors include Uber drivers, seasonal workers and freelance professionals in the expanding digital workplace, political analysts have noted.

Amendment AB 1099, introduced by San Diego Assemblywoman Lorena Gonzalez Fletcher, would require employers that accept payment cards to also accept tips via payment cards, and to pay employees promptly, representatives stated. The bill would affect ride-hailing services such as Uber, which currently encourages passengers to pay driver gratuities in cash.

“The Uber app does not include a tip when billing you for a trip fare,” the Uber website states. Uber said its app is designed to be a cashless experience, and tipping is voluntary. The company’s alternative service, uberTAXI, connects riders with licensed yellow cabs that can process credit card gratuities by adding a percentage to a trip fare, the company stated.

Prompt payment

The U.S. Dept. of Labor, Wage and Hour Division, stipulates that employees must be paid their tips by the next regular payday. They should not have to wait until credit card companies reimburse their employers. However, the department does allow employers to claw back credit card charges that proved to be unrecoverable.

California’s AB 1099 would also enforce prompt payment by requiring merchants to pay gratuities to employees “not later than the next regular payday following the date the patron authorized the credit card payment.” Violators would be prosecuted, the legislation’s authors stated.

Net tips

AB 1099’s language upholds California’s ban on paying net tips to employees, a practice approved by the U.S. Dept. of Labor but banned in some states. While processing software designed to extract the precise amount of payment card interchange from workers’ tips has been available for more than twenty years, not all merchants have embraced the practice, even in states where it is allowed, payments analysts stated.

The department allows employers to reduce the amount of credit card tips paid to employees by “an amount no greater than the amount charged to the employer by the credit card company,” but stipulates that “other costs that employers want their tipped employees to bear must be within normal administrative costs of their operations.

“An employer may deduct an average standard composite amount for tip liquidation, rather than individually calculating the precise charge for each transaction, so long as the total amount collected reasonably reimburses the employer for no more than the total amounts charged by the credit card companies attributable to liquidating credit card tips,” the department stated. “Any employer attempt to deduct an average standard composite amount for tip liquidation that exceeds such expenditures is not acceptable.”

AB 1099 reinforces California’s position against net tipping, including the following quotes from its proposed amendment:

• Net tips are unlawful: “Existing law prohibits an employer or agent, as defined, from collecting, taking, or receiving any gratuity or a part thereof that is paid, given to, or left for an employee, as defined, by a patron, or deducting any amount from wages due an employee on account of a gratuity, or requiring 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.”

• Tips belong to employees: “Existing law declares a gratuity the sole property of the employee or employees to whom it was paid, given, or left for. Existing law requires an employer that permits patrons to pay gratuities by credit card to 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.”

• Employers must keep accurate records: “Existing law requires an employer to keep accurate records of all gratuities received by the employer and requires that these records be open to inspection at all reasonable hours by the Department of Industrial Relations.”

• Tipping guidelines are enforceable: “Existing law requires the department to enforce these provisions, and an employer who violates these provisions is guilty of a misdemeanor.”

While AB 1099 makes its way through the California State Legislature, processors, acquirers and merchants await further clarification to existing gratuity guidelines.

Editorial Note:

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