(1) A tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed. It is to be distinguished from payment of a charge, if any, made for the service. Whether a tip is to be given, and its amount, are matters determined solely by the customer, and generally the customer has the right to determine who shall be the recipient of the gratuity.

(a) In addition to cash sums presented by customers which an employee keeps, tips received by an employee include, amounts paid by bank check or other negotiable instrument payable at par and amounts transferred by the employer to the employee pursuant to directions from credit customers who designate amounts to be added to their bills as tips.

(b) Tips are the employees' to keep and may not be used by the employer to make up any part of the employees' wage.

(c) Tips may be distributed pursuant to a valid tip pool agreement. A tip pool agreement for the purpose of distribution of tips is valid only where voluntarily entered into by employees without the involvement of management. Employees must first determine whether to enter into a tip pool agreement, and if so, the details of that agreement. Where a valid tip pool agreement has been created, management may enforce the agreement.

(2) A service charge includes any arbitrary fixed charge added to the customer's bill by an employer in lieu of a tip, no matter what it is labelled (i.e., service charge, setup fee, house fee, service fee, labor charge, etc.).

(a) Absent a valid tip pool agreement, a service charge must be distributed equally among nonmanagement employees involved in food preparation or service, or a related service. Equal distribution must be among those workers who performed services during the particular shift or event where the service charge was earned and must be distributed on a pro rata basis.

(b) A valid tip pool agreement may be created by management for the distribution of a service charge. The tip pool agreement is valid for the purpose of distribution of service charges so long as it distributes all service charge monies to nonmanagement employees.

(c) A service charge may not be utilized to make up any part of an employees' wage.

(3) Where tips or service charges are charged on a credit card and the employer must pay the credit card company a percentage on each sale, the employer may pay the employee the tip, less that percentage. The employer must keep records of all such deductions.