Some restaurants add a “mandatory service charge” to bills for large tables of diners, private parties, or catered events. Under federal and California law, this is not considered a tip. Even if the customer thinks the money is going to you and doesn’t leave anything extra on the table, your employer can keep any money designated as a “service charge.” The law generally considers this part of the contract between the customer and the establishment, not a voluntary acknowledgment of good service by an employee. Many employers give at least part of these service charges to employees, but that’s the employer’s choice: Employees have no legal right to that money.
Under IRS rules, any portion of a mandatory service charge that an employer pays to employees must be treated as wages, not tips. This means that the employer must withhold and pay Social Security and Medicare (FICA) taxes on these amounts, cannot claim a credit against its tax liability for these amounts (as it can for tips), and must include them as part whatsapp in korea of the employee's hourly wage when determining overtime payments, among other things.
The rule applies only to mandatory service charges. For the amount to count as a tip rather than a service charge, all of the following must be true:
Payment must be entirely voluntary
The client must have the unrestricted right to determine the amount
The amount cannot be set by employer policy or subject to negotiation with the employer.
The customer should have the right to determine who receives payment.
Credit Card Charges
If tips are left by credit card, some states allow employers to subtract credit card processing fees from the employee's tips. The employer would typically subtract a proportional amount from the tip to cover the employee's "share" of the fee. For example, if the credit card company charges a 3% fee, the employer could also legally reduce the employee's tip by 3%. However, California does not follow this rule. Under California law, the employer has to give the employee the full tip left by the customer and pay the credit card processing fee itself.