Tips belong to the employee who earned them, but federal and state laws permit employers to require participation in a "tip pool" — a shared fund redistributed among certain workers. The rules on who can participate, how it can be structured, and what counts as a permissible deduction have changed several times in the last decade.
Federal rules under the FLSA were significantly amended by the Consolidated Appropriations Act of 2018 and the DOL's 2021 final rule. The key change: managers and supervisors cannot keep employees' tips for any purpose, full stop.
Federal baseline
- Tips belong to the employee. The 2018 amendments to FLSA § 3(m) explicitly prohibit employers from keeping any portion of tips received by employees, regardless of whether the employer takes a tip credit.
- Managers and supervisors cannot participate in a tip pool. Even if other employees agree, even in a "fair share" arrangement.
- Tip credit: An employer may pay tipped employees a lower direct cash wage ($2.13 federal floor) and credit tips toward minimum wage — but only with proper notice and only when tips actually reach the minimum wage threshold.
- Mandatory tip pools — limits:
- With a tip credit: Pool can only include "tipped employees" (those who customarily and regularly receive tips). Back-of-house staff (cooks, dishwashers) cannot be in the pool.
- Without a tip credit: Pool can include back-of-house staff. Some states have stricter rules.
- Service charges vs. tips: A mandatory service charge added to a check is the employer's revenue, not a tip — unless the employer's practice and the customer's reasonable expectation say otherwise.
- Credit card processing fees: Federal law allows the employer to deduct a proportionate share of the credit card processing fee from a tip paid by credit card. Some states prohibit this.
- Cash shortages: The employer cannot deduct cash shortages, breakage, or customer walkouts from tips if doing so would bring the employee below minimum wage.
State variations
- California: Stronger protections — tip credit is not permitted; servers must be paid full minimum wage in addition to tips. Mandatory tip pools allowed but with restrictions.
- New York: Specific industry-specific orders (hospitality, restaurant) regulate tip pools. Service charges that look like tips to customers may be treated as tips.
- Massachusetts: Strong tip pool protections; service-charge confusion is heavily regulated. The Tips Act provides triple-damages remedies similar to other wage claims.
Many states are more protective than federal. Check your state.
Step-by-step: how to evaluate
1. Identify the structure
- Are you on a "tip credit" wage (below state minimum, with tips credited toward minimum)?
- Is there a mandatory tip pool, and who participates?
- Are managers or supervisors in the pool, in any form?
- Are service charges added to checks, and how is that money distributed?
2. Check who is in the pool
The single biggest red flag: a manager or supervisor receiving any portion of tips. Even informally — even as a "courtesy" or "fair share."
3. Verify the tip credit math
If you receive tips and are paid below state minimum wage, the employer must show that your total compensation (tips + direct wage) meets or exceeds minimum wage for every workweek. Tip-shortfall weeks must be made up by the employer.
4. Document everything
Tip earnings, hours worked, the structure of the tip pool, any deductions from tips. A detailed log is the difference between a strong claim and a vague one.
Scripts to use
To request tip pool transparency:
"Could you please provide a written description of the tip pool, including: (a) who participates, (b) what categories of workers are eligible, (c) what percentage each receives, and (d) how the pool is calculated each shift. I'd like to make sure I understand the structure."
When you suspect a manager is in the pool:
"I want to flag a concern about the tip pool. My understanding is that under FLSA, managers and supervisors cannot share in employee tips, regardless of whether other arrangements are made. Could you confirm whether [specific person] is participating in the pool, and the basis for that participation?"
To request unpaid tips:
"Based on the FLSA prohibition on managerial participation in tip pools, I believe a portion of my earned tips has been improperly withheld during [period]. I am requesting reimbursement of the unpaid tips and an end to the practice going forward."
What to document
- Your direct wage and hours worked each week
- Your reported tip earnings (from your own records, not just the employer's)
- The tip pool structure (who participates, how shares are calculated)
- Any deductions from tips (credit card fees, shortages, walkouts)
- Service charges and how they are distributed
- Any communications about the tip pool or tip credit
When to escalate
If you suspect wage theft or unlawful tip pooling:
- File a complaint with the U.S. Department of Labor, Wage and Hour Division. The DOL investigates tip-related claims and the standards are well-developed.
- File a wage claim with your state labor agency for any state-law claims (California DLSE, NY DOL, etc.).
- Consult an employment attorney for class or collective treatment. Tip-related claims often involve multiple employees in the same workplace and qualify for collective action under FLSA § 16(b).
- The FLSA anti-retaliation provisions protect employees who file wage complaints. Retaliation creates a separate claim.
The FLSA's strong remedies — back tips, liquidated damages equal to back tips, attorney's fees, plus state-law triple-damages in Massachusetts and similar states — make tip-related wage cases attractive to plaintiffs' employment attorneys. Even individually-filed cases frequently settle once the structural defects in the tip pool are identified.
Educational content only — not legal advice. Employment law varies by jurisdiction and situation. Consult a qualified employment attorney for advice specific to your circumstances.