Can My Boss Keep My Tips? — In Plain Words

This page is general information only. It is not legal advice.

What this page covers

This page covers federal rules only. It is about who owns tips — whether an employer, a manager, or a supervisor may keep them, and how tip pools, credit-card tips, and service charges work.

It is based on two fact sheets from the U.S. Department of Labor, Wage and Hour Division: Fact Sheet #15, “Tipped Employees Under the Fair Labor Standards Act (FLSA),” and Fact Sheet #15B, “Managers and Supervisors Under the Fair Labor Standards Act (FLSA) and Tips.” Where the two sheets state things differently, this page keeps their material in separate, labeled passages and does not blend their wordings.

Only the employer or the U.S. Department of Labor can decide a real case.

Cross-reference, in plain text only: This program also has a built page titled “Tipped Minimum Wage — In Plain Words.” That page covers the tip-credit wage rules. This page is the ownership half only, and it does not re-teach that wage math.

The flat ban — Fact Sheet #15

Fact Sheet #15 states it under the heading “Employers, Including Managers and Supervisors, May Not ‘Keep’ Tips”:

Regardless of whether an employer takes a tip credit, the Fair Labor Standards Act (FLSA) prohibits employers from keeping any portion of employees’ tips for any purpose, whether directly or through a tip pool.

An employer may not require an employee to give their tips to the employer, a supervisor, or a manager, even where a tipped employee receives at least the federal minimum wage per hour in wages directly from the employer and the employer takes no tip credit.

Fact Sheet #15B states the same ban in its own words: the FLSA prohibits an employer from keeping tips and from allowing a manager or supervisor to keep any portion of other employees’ tips for any purpose. That prohibition applies whether or not the employer pays tipped employees with a tip credit.

Who counts as a manager or supervisor — Fact Sheet #15

Fact Sheet #15 states: Managers and supervisors include any employee (1) whose primary duty is managing the enterprise or a customarily recognized department or subdivision of the enterprise; (2) who customarily and regularly directs the work of at least two or more other full-time employees or their equivalent; and (3) who has the authority to hire or fire other employees, or whose suggestions and recommendations as to the hiring or firing are given particular weight.

Fact Sheet #15 also states: Business owners who own at least a bona fide 20 percent equity interest in the enterprise in which they are employed and who are actively engaged in its management are also managers and supervisors who may not keep employees’ tips.

Who counts as a manager or supervisor — Fact Sheet #15B

Fact Sheet #15B states it this way: For purposes of the FLSA’s tip provisions, a manager or supervisor includes any employee that meets the “executive” duties test. This is the same duties test used (along with other tests) to determine whether an employee is exempt from the FLSA’s minimum wage and overtime provisions because they are employed in a bona fide executive capacity. Meeting the executive duties test means:

• the employee customarily and regularly directs the work of at least two or more other full-time employees or their equivalent;
• the employee has the authority to hire or fire other employees, and/or their suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight; and
• the employee has a primary duty of managing the enterprise or a customarily recognized department or subdivision of the enterprise.

Fact Sheet #15B explains “primary duty” this way: An employee’s primary duty is the principal, main, major, or most important duty that the employee performs. An employee’s primary duty is based on the entire workweek or whatever longer period of time is appropriate to capture the character of the employee’s job as a whole — not a day-by-day scrutiny of the tasks the employee performs.

Fact Sheet #15B states that managing includes but is not limited to: interviewing, selecting, and training employees; setting and adjusting employees’ rates of pay; setting and adjusting employees’ hours of work; directing the work of employees; handling employee complaints and grievances; disciplining employees; controlling the flow and distribution of materials or merchandise and supplies; and planning and controlling the budget.

Fact Sheet #15B also states: An employee whose primary duty is managing may also perform non-management duties, including tip-producing work, and still meet the primary duties test. For example, restaurant managers who perform work like serving customers during the restaurant’s busiest periods would be exempt if their primary duty is managing the restaurant — the manager typically directs and supervises other employees’ work while performing this customer service work.

Fact Sheet #15B states the business-owner rule in its own words: Business owners who own at least a bona fide 20 percent equity interest in the enterprise in which they are employed and who are actively engaged in its management also satisfy the executive duties test. Under the tip provisions of the FLSA, these employees are managers or supervisors who may not keep other employees’ tips.

Fact Sheet #15B adds this express note: To be employed in a bona fide executive capacity and therefore exempt from the FLSA’s minimum wage and overtime requirements, an employee generally must satisfy a salary level and a salary basis test, along with the executive duties test. However, to qualify as a manager or supervisor under the tip provisions of the FLSA, an employee does not need to earn any particular level of compensation or be paid on a salary basis. As a result, not every employee who qualifies as a manager or supervisor for tip purposes is an exempt executive employee.

The one exception for a manager’s own tips

Fact Sheet #15 states: A manager or supervisor may keep only those tips that they receive directly from a customer for the service they directly and solely provide. For example, a restaurant manager who serves their own tables may keep their own tips from customers they served but would not be able to receive other employees’ tips by participating in a tip pool.

Fact Sheet #15B states the same exception in its own words: Some managers and supervisors perform tip-producing work in addition to their primary duty of management. In these scenarios, the FLSA does not prohibit managers and supervisors from keeping tips that are theirs alone. A manager or supervisor may keep tips that they receive directly from customers based on the service that they directly and solely provide.

Tip pooling — Fact Sheet #15

Fact Sheet #15 states: The FLSA allows employers to require employees to share or “pool” tips with other eligible employees. The FLSA does not impose a limit on the percentage or amount of the contribution of each employee in valid mandatory tip pools. As the sheet explains, the rules governing tip pools depend on whether the employer pays a direct (or cash) wage equal to the full minimum wage to tipped employees or not.

Traditional tip pooling. An employer that takes a tip credit can require tipped employees to contribute tips only to a tip pool which is limited to employees in occupations in which they customarily and regularly receive tips, such as waiters, bellhops, counter personnel (who serve customers), bussers, and service bartenders. This is sometimes known as a “traditional” tip pool. An employer that implements a traditional tip pool must notify tipped employees of any required tip pool contribution amount, may only take a tip credit for tips each tipped employee ultimately receives, and may not retain any of the employees’ tips for any other purpose. An employer may not receive tips from such a tip pool and may not allow managers and supervisors to receive tips from the pool.

Other tip pooling. When an employer pays its employees a cash wage of at least the federal minimum wage (currently $7.25) per hour, the employer may impose a mandatory tip pooling arrangement that includes employees who are not employed in an occupation in which employees customarily and regularly receive tips. This is sometimes known as a “nontraditional” tip pool. For example, an employer that implements a nontraditional tip pool may require tipped employees, such as servers, to share tips with non-tipped employees, such as dishwashers and cooks, but only if all workers receive a direct cash wage of at least the federal minimum wage. In addition, an employer may not receive tips from such a tip pool and may not allow managers and supervisors to receive tips from the pool.

Distributing tips from tip pools. When an employer collects tips to administer a tip pool, the employer must fully distribute any collected tips at the regular payday for the workweek, or, for pay periods of more than one workweek, at the regular payday for the period in which the particular workweek ends. To the extent an employer cannot determine the amount of tips received or how tips should be distributed before processing payroll, those tips must be distributed to employees as soon as practicable after the regular payday.

Tip jars, pools, and contributing — Fact Sheet #15B

Fact Sheet #15B states: The FLSA, for example, prohibits a manager or supervisor from receiving tips from a tip pool or tip jar, because tip pools and tip jars include other employees’ tips.

Fact Sheet #15B also states: Regardless of whether they are engaged in tip-producing work, if an employee qualifies as a manager or supervisor, the manager or supervisor cannot keep other employees’ tips, including by receiving them from a tip pool or by sharing tips that were based in part on other employees’ work and which were collected in a tip jar.

Fact Sheet #15B states the contribution rule, which runs one way only: An employer may require managers and supervisors who earn their own tips to contribute a portion of those tips to other non-managerial employees through a mandatory tip pool. But the manager or supervisor may not receive any tips from the tip pool.

Credit-card tips — Fact Sheet #15

Fact Sheet #15 states: Under the FLSA, when tips are charged on customers’ credit cards and the employer can show that it pays the credit card company a percentage on such sales as a fee for payment using a credit card, the employer may pay the employee the tip, less that percentage. For example, where a credit card company charges an employer 3 percent on all sales charged to its credit service, the employer may pay the tipped employee 97 percent of the tips without violating the FLSA.

Fact Sheet #15 also states: However, the employer cannot reduce the amount of tips paid to the employee by any amount greater than the transactional fee charged by the credit card company, regardless of whether or not it takes a tip credit. Doing so would be a keeping violation under section 3(m)(2)(B). Additionally, this transactional fee may not reduce the employee’s wage below the required minimum wage, including the amount of any tip credit claimed.

Fact Sheet #15 also states: Under federal law, the amount due the employee must be paid no later than the regular pay day and may not be held while the employer is awaiting reimbursement from the credit card company.

Fact Sheet #15 closes that passage with this note: Some states may have more protective laws regarding tips charged to credit cards which do not allow the employer to deduct credit card fees from employees’ tips. This page states no state rule.

Service charges are not tips — Fact Sheet #15

Fact Sheet #15 states: A compulsory charge for service, for example, 15 percent of the bill, is not considered a tip under the FLSA. Sums distributed to employees from service charges are not tips, but may be used to satisfy the employer’s minimum wage and overtime pay obligations under the FLSA. Further, these sums are part of the employee’s total compensation and must be included in the regular rate of pay for computing overtime.

Fact Sheet #15 also states: If an employee receives tips in addition to the compulsory service charge, those tips may be considered in determining whether the employee is a tipped employee and in the application of the tip credit.

A pooling problem the sheet names — Fact Sheet #15, “Typical Problems”

In its “Typical Problems” section, under “Tip Pooling Problems,” Fact Sheet #15 states: An employee is required to share tips with a manager or supervisor, regardless of whether the employer takes a tip credit for the tipped employee. An employer who violates the FLSA by requiring tipped employees to share their tips with a manager or supervisor may be required to return the tips to the employee and pay the full minimum wage.

Five worked examples — Fact Sheet #15B

Fact Sheet #15B gives five examples. They are printed below as the sheet gives them:

Example #1: Dorothea is the supervisor at a pizza parlor who meets the executive duties test. On an evening when there are many delivery orders, Dorothea delivers a pizza to a customer’s home, and the customer gives her a tip. Dorothea may keep the tip, which she received directly from the customer based on the service that she directly and solely provided.

Example #2: Dinesh is the manager of a hotel who meets the executive duties test. When a guest arrives with many bags, Dinesh helps the bellhop load them onto a cart before the bellhop delivers them to the guest’s room. Dinesh may not keep any portion of the tip the customer provides to the bellhop because it is not possible to attribute the tips solely to the service Dinesh provides.

Example #3: Raimondo is a restaurant manager who meets the executive duties test. The restaurant operates an employer-mandated tip pool for servers, bartenders, and bussers. Sometimes Raimondo works a shift as a bartender. Raimondo may not receive any tips from the tip pool, including when he works a shift as a bartender. Raimondo may, however, keep the tips he receives directly from customers based on the service that he directly and solely provides while tending the bar. However, the restaurant may require him to contribute some or all of those tips to the mandatory tip pool, but he cannot receive tips from the tip pool.

Example #4: Cheng is the manager at a café who meets the executive duties test. Often Cheng simultaneously supervises employees and works alongside them to serve customers at the counter. Customers at the café may include a tip when they pay by credit card at the counter or may place cash tips in a common jar. Cheng may not keep any portion of these tips because it is not possible to attribute the tips solely to the service Cheng provides.

Example #5: Taylor is a 30 percent owner of a hair salon who is actively engaged in management of the salon. Taylor also cuts and styles hair for clients. Taylor may keep tips left by customers whose hair they personally cut and style, because they receive these tips based on a service that they directly and solely provide.

Wage and Hour Division contact block, as printed on the fact sheets

Wage and Hour Division
An agency within the U.S. Department of Labor
200 Constitution Ave NW
Washington, DC 20210
1-866-4-US-WAGE
1-866-487-9243
www.dol.gov

This page is general information only. It is not legal advice.