California Cracks Down on Tip Theft: What SB 648 Means for Employers by January 1, 2026

This article is from The National Law Review: https://ow.ly/vjyI50WFBHl On July 30, 2025, Governor Gavin Newsom signed Senate Bill 648, a law that strengthens California’s enforcement against tip theft. Beginning January 1, 2026, the state labor commissioner can investigate gratuity violations and issue citations and civil fines—a major shift that puts teeth behind long-standing rules in Labor Code § 351.

This update matters most to restaurants, bars, hotels, salons, barbershops, nail salons, and any business where workers receive tips.

Quick Takeaways

• Labor commissioner enforcement: SB 648 authorizes investigations and administrative citations with civil penalties for tip theft.

• New remedies: Adds civil penalties and private enforcement rights to bolster existing gratuity protections.

• Effective date: January 1, 2026.

• No tip credits in CA: Employers cannot use tips to meet minimum wage.

• Credit card tips: Must pay employees the full gratuity shown on the receipt, with no processing-fee deductions, by the next pay period.

• Recordkeeping: Employers must maintain accurate gratuity records and make them available to the Department of Industrial Relations on request.

• Tip pools: Still permitted if compliant with § 351 (i.e., no owners/managers/supervisors share in tips).

  
  

What Counts as Tip Theft Under California Law?

California already bans employers from:

• Withholding or diverting tips intended for workers.

• Applying tips as a credit toward wages or minimum wage.

• Skimming credit-card fees from employees’ tips.

SB 648 doesn’t change those substantive rules; it supercharges enforcement by empowering the labor commissioner to investigate, cite, and fine violators—reducing the need for workers to rely solely on civil lawsuits.

Who’s Covered?

Any employer with tipped workers, including:

• Restaurants & bars

• Hotels & resorts

• Cafés, coffee shops & bakeries

• Hair & nail salons, barbershops & spas

• Event venues & tourism businesses

If customers can leave tips—cash, credit card, or digital—this law applies.

Credit Card Gratuities: Zero Deductions, Prompt Pay

If you accept tips via credit card:

• Pay employees the full tip amount shown on the slip—no swipe/processing fee deductions.

• Distribute those gratuities no later than the next pay period after the customer’s payment.

  
  

Recordkeeping Requirements

SB 648 requires employers to:

• Keep accurate records of all gratuities received by the employer.

• Provide records to the DIR for inspection upon request.

Practical tip: Maintain a gratuity ledger that ties out to POS reports and payroll, and retain tip-pool allocations and payroll proof of payment.

Tip Pooling Still Allowed (With Guardrails)

California courts interpret § 351 to allow tip pooling if:

• The policy excludes owners, managers, and supervisors from sharing in tips.

• Distribution is fair and transparent among eligible, non-managerial staff who contribute to the service experience.

SB 648 does not appear to change that interpretation—just ensure your policy is written, consistent, and well-documented.

Action Plan: Get Ready Before January 1, 2026

1) Audit Policies & POS Settings

• Confirm written gratuity and tip-pool policies reflect § 351 and exclude ineligible personnel.

• Ensure POS and payroll do not deduct credit-card fees from tips.

2) Tighten Payroll & Timing

• Map a process to pay all credit-card tips by the next pay period.

• Verify paystubs clearly show tip amounts and tip-pool allocations.

3) Build a Gratuity Record System

• Maintain daily POS tip reports, tip-pool worksheets, and payroll confirmations.

• Assign ownership for DIR inspection requests.

4) Train Managers & Leads

• Prohibit any manager/owner participation in tip pools.

• Reinforce that tips are in addition to minimum wage (no tip credits in CA).

5) Update Handbooks & New-Hire Materials

• Include your gratuity policy, tip-pool rules, and reporting/complaint channels.

• Post or distribute a one-page explainer for employees on how tips are tracked and paid.

6) Review Third-Party Channels

• If you receive tips via delivery apps or digital platforms, ensure those amounts are passed through to employees in full and captured in your records.

  
  

Common Pitfalls to Avoid

• Deducting merchant fees from credit-card tips.

• Letting supervisors into the tip pool (even “just once”).

• Paying credit-card tips late or off-cycle.

• Inadequate documentation—no clear trail from customer payment to employee payout.

• Treating tips as an offset to wages.

  
  

Bottom Line

SB 648 makes California’s anti–tip theft rules easier to enforce and costlier to ignore. Start now: align your policies, technology, and training so every dollar tipped by a customer reaches the workers who earned it—on time and fully documented.