For millions of restaurant workers, bartenders, and service industry employees, tips represent a substantial portion of income. When employers illegally take, redistribute, or fail to properly pay tips, workers lose significant earnings. Federal and state laws protect your right to keep the tips you earn.
Your Tips Belong to You
Under the Fair Labor Standards Act, tips are the property of the employee who received them. Employers cannot keep any portion of tips that employees receive, regardless of whether the employer takes a tip credit. This basic rule was strengthened in 2018 to eliminate any ambiguity.
A tip is money voluntarily given by customers for service. This includes cash tips, credit card tips, and tips left in tip jars. Service charges that customers must pay are different—employers have more control over mandatory service charges, though many states require disclosure about whether service charges go to employees.
Common Tip Violations
Tip skimming occurs when employers take a percentage of employee tips for themselves. Some disguise this as "house fees" or "credit card processing fees." Deducting from tips for credit card fees is illegal in most states, and employers cannot charge employees for walked tabs or cash register shortages from tips.
Illegal tip pools include management, owners, or back-of-house workers who shouldn't participate. Under federal law, employers who take a tip credit can only require tipping out other directly serving employees like servers, bussers, and bartenders. Managers, supervisors, and owners can never participate in tip pools.
Recent changes allow employers who pay full minimum wage (no tip credit) to include kitchen staff in tip pools. However, management is still excluded. If your employer takes a tip credit and forces you to share tips with cooks or dishwashers, that's likely illegal.
Tip Credit Violations
The tip credit allows employers to pay tipped employees a lower base wage, with tips making up the difference to minimum wage. The federal tipped minimum wage is $2.13 per hour, though many states require more. If your tips don't bring you to full minimum wage, your employer must make up the difference.
Employers must inform employees about tip credit rules before using it. Many employers violate wage laws by paying the tipped minimum wage without providing required notice or ensuring employees actually receive enough tips.
Non-tipped work creates additional problems. If you spend more than 20% of your time on non-tip-producing tasks—like cleaning, rolling silverware, or prep work—your employer may owe you full minimum wage for that time. Excessive side work is a common source of tip credit violations.
State Tip Laws
Many states provide greater protections than federal law. Seven states require employers to pay full minimum wage before tips: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. In these states, tips are entirely additional income.
Other states set higher tipped minimum wages than the federal floor. State laws also vary on tip pooling, tip credit notice requirements, and what counts as a "supervisor" excluded from tip pools.
Proving Tip Violations
Keep personal records of your tips. Write down cash tips daily, keep credit card receipts or tip report printouts, and document tip pool requirements. If you're asked to sign documents about tips, keep copies.
Pay stubs should show tips separately from wages. Review them for accuracy. If your paychecks don't match what you actually received in tips, document the discrepancies.
Talk to coworkers—tip violations typically affect everyone. Multiple employees with consistent experiences create stronger evidence and may support class or collective action lawsuits.
Damages for Tip Theft
You can recover the full amount of stolen tips, plus liquidated damages under federal law that effectively double your recovery. If your employer's violation was willful, you may recover tips from up to three years back rather than the standard two-year limit.
State laws may provide additional penalties. Some states allow recovery of waiting time penalties, statutory penalties per pay period, and attorneys' fees. Class actions can recover significant amounts when violations affected many employees.
Taking Action
You have several options for addressing tip theft. Filing a complaint with the Department of Labor or your state labor agency initiates an investigation at no cost to you. However, private lawsuits often recover more because they include liquidated damages and can cover longer time periods.
Class or collective actions combine many employees' claims, increasing pressure on employers and making representation cost-effective for attorneys. Many wage cases settle before trial once employers realize the extent of their liability.
Getting Legal Help
Employment attorneys who handle wage cases typically work on contingency, taking fees only from successful recoveries. They can evaluate whether you have individual or class claims, calculate your potential damages, and navigate the complexities of tip credit and tip pooling laws.