California's SB 648: credit card tips just got teeth behind them
By Yan Payments
The rule itself isn’t new
Here’s the part that surprises a lot of owners: deducting credit card processing fees from an employee’s tips has been illegal in California for years. Labor Code Section 351 already says tips are the sole property of the employee who earned them, and an employer can’t take any part of that tip, including a slice to cover the 2-3% the card network charged to process it.
What’s new is SB 648, signed in July 2025 and in effect since January 1, 2026. It doesn’t rewrite that rule. It gives the Labor Commissioner a much shorter path to enforcing it, and it raises the cost of getting caught.
What actually changed
Before SB 648, an employee whose tips were being skimmed for card fees mostly had to sue, or wait for a wage claim to work through the system. Now the Labor Commissioner can open an investigation on their own, without waiting for a complaint, and issue a citation directly, using the same streamlined citation process already used for other wage violations.
The penalties are specific:
- $250 per violation for a first offense
- $1,000 per violation if the violation is willful
- Plus repayment of the withheld tips, interest, and potentially the employee’s attorney’s fees
SB 648 also opened the door to a private right of action, meaning an employee (or a group of employees) can go straight to court over gratuity violations without routing everything through the Labor Commissioner first.
“Per violation” matters here. If you’ve been shorting tip payouts by the card fee percentage across every shift for months, that’s not one violation, it’s potentially dozens, each carrying its own penalty.
Where this actually trips up restaurants
Almost nobody sets out to steal tips. The problem is usually buried in how the point-of-sale system is configured, or in an old habit nobody re-examined:
- The POS is set to net out the processing fee before splitting tips. Some older systems default to this. If a customer tips $20 on a card and the processing cost on that transaction is $0.60, the employee is supposed to get the full $20, not $19.40.
- Tip pools get calculated off net sales instead of gross tips collected. This can accidentally bake fee deductions into the pool math without anyone noticing.
- Payout timing drifts. The law requires the gratuity to be paid out no later than the next regular payday after it’s collected. A delay by itself isn’t a fee deduction, but sloppy timing often travels with sloppy math.
None of these require bad intent. They require someone to actually check the configuration.
A five-minute check for owners
Pull up your POS tip reporting and compare it against an actual payroll run for one pay period:
- Does the tip amount reported per employee match what the customer actually tipped, to the penny, on card transactions?
- If there’s a discrepancy, is it consistently a small percentage (a sign the fee is being netted out) or random (more likely a reporting quirk)?
- Ask your processor or POS provider directly: “Does our system deduct any fee from tips before reporting them to payroll?” Get the answer in writing.
If you run Clover, this is usually a settings issue in how tips are configured against a transaction, not something baked into the hardware. Having someone who knows the system check it is a better move than assuming the default is set up correctly.
Keep your own records too. If a citation ever comes, the business that can hand over clean payroll and POS reports showing tips were passed through in full is in a very different position than one that can’t produce anything. That record-keeping habit protects you whether or not you ever hear from the Labor Commissioner.
This also isn’t limited to restaurants. Any business with tipped employees, bars, salons, delivery drivers, car washes, carries the same exposure if card tips are getting netted down before payroll sees them.
This is general information, not legal advice. Wage and hour enforcement is fact-specific, and if you think you may have a tip payout problem, talk to an employment attorney before making changes to payroll.
The bottom line
SB 648 didn’t create a new rule for restaurants to follow. It created a much faster, much more expensive path to getting caught following the old one incorrectly. If your tip math has been off for a while and nobody’s complained yet, you’ve gotten lucky, and SB 648 just shortened how long that luck lasts.
If you want a second set of eyes on how your Clover system handles tips and payouts, reach out and we’ll walk through your setup with you.
Sources
← Back to all posts