California Employers Face Stricter Tip Theft Enforcement Under SB 648

On July 30, 2025, Governor Gavin Newsom signed Senate Bill 648 (SB 648) into law. Beginning January 1, 2026, California’s Labor Commissioner will have new authority to investigate tip theft and issue citations and civil penalties. This new enforcement power is especially important for industries where employees rely heavily on tips, including restaurants, bars, hotels, salons, and others in the service industry.

What SB 648 Requires

California law (Labor Code § 351) already provides that tips belong to employees and cannot be kept by employers or counted toward wages. Until now, however, employees who believed their tips were withheld typically had to file a lawsuit to recover them, because the Labor Commissioner lacked the power to cite employers for tip theft.

SB 648 changes that by granting the Labor Commissioner enforcement authority: the Commissioner may now investigate tip theft and issue citations or bring civil actions, using the same process applied to minimum-wage violations under Labor Code § 1197.1.

At the same time, SB 648 does not rewrite the rules around gratuities—it reinforces them. Employers should remember:

• Tips belong to employees:

  • They cannot be kept by the business or used as a wage credit. California does not allow a “tipped minimum wage.”

• Credit-card tips must be paid in full:

  • Employees must receive the entire gratuity listed on a credit-card slip, with no deductions for processing fees, and payment must be made by the next regular payday.

• Accurate records are required:

  • Employers must keep proper gratuity records and make them available for inspection by the Department of Industrial Relations.

• Tip pooling remains permitted—but limited:

  • Pooling policies may include non-managerial staff involved in service, but owners, managers, and supervisors cannot share in pooled tips.

What Employers Should Do Now

With the law taking effect on January 1, 2026, employers should take proactive steps to stay compliant and avoid penalties:

1. Review pay practices: Ensure tips are paid in full and on time, with no deductions.

2. Update policies: Put clear written policies in place on tip handling and distribution.

3. Check tip pooling arrangements: Confirm that managers and supervisors are excluded from receiving tips.

4. Maintain accurate records: Keep detailed gratuity records to show compliance if inspected.

5. Train managers: Make sure those responsible for payroll and scheduling understand the new law.

If you have questions about SB 648 or need legal support tailored to your business, please contact our Managing Partner, Richard Liu, at contact@consultils.com.

Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.

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Richard Liu, Esq. is the Managing Counsel of ILS. He serves clients as a management-side defense lawyer specializing in employment and business litigation. Richard is also an expert on litigation prevention and compliance. He regularly advises Fortune 500 companies and startups on employment, labor, and commercial matters.

Email: contact@consultils.com | Phone: 626-344-8949