Yes, it is illegal to withhold tips from employees under federal law. The Fair Labor Standards Act explicitly prohibits employers, managers, and supervisors from keeping any portion of tips that customers leave for service workers. Violating this law exposes employers to double damages and civil penalties.
Many workers don’t realize the law changed significantly in 2018 and again in 2021. The rules around who can be in a tip pool, whether back-of-house workers can receive tips, and what managers can and cannot do are all more specific now than they were a decade ago.
This article covers the exact federal law, what changed in 2018 and 2021, tip pooling rules, tip credits, service charge distinctions, state law differences, and exactly how workers can recover tips that were illegally taken.
Is It Illegal to Withhold Tips From Employees
Yes, it is illegal to withhold tips from employees under the Fair Labor Standards Act. The specific provision is 29 U.S.C. Section 203(m)(2)(A), which states that an employer may not keep tips received by employees, regardless of whether the employer takes a tip credit.
This prohibition applies to all employers covered by the FLSA, which includes the overwhelming majority of private businesses in the United States. The law is not limited to restaurants. It covers hotels, salons, spas, delivery services, casinos, and any other business where customers voluntarily leave tips for service workers.
The rule also applies when an employer does not take a tip credit. A common employer misconception is that the tip ownership rules only apply to businesses that pay the tipped minimum wage instead of the full federal minimum wage. That’s wrong. Even an employer who pays all employees the full minimum wage of $7.25 per hour cannot take or keep employee tips.
| What the Law Covers | What It Prohibits | Statute |
|---|---|---|
| All FLSA-covered employers | Keeping any portion of employee tips | 29 U.S.C. 203(m)(2)(A) |
| Employers using tip credits | Keeping tips or underpaying tipped wage | 29 U.S.C. 203(m)(2)(A) |
| Employers not using tip credits | Keeping tips even while paying full minimum wage | 29 U.S.C. 203(m)(2)(A) |
| Managers and supervisors | Receiving any share of tips from a pool | 29 U.S.C. 203(m)(2)(B) |
Can Employers Withhold Tips From Employees
Employers cannot withhold tips from employees under federal law. The Fair Labor Standards Act is explicit: tips belong to the employees who receive them. The only exceptions are valid tip pools that meet federal requirements, and even those must distribute tips exclusively among eligible employees.
The 2018 Consolidated Appropriations Act, signed into law as Public Law 115-141, was a landmark change that specifically added the prohibition on managers and supervisors keeping tips. Before 2018, the law was less clear about what happened when employers did not take a tip credit. The 2018 amendment eliminated that ambiguity.
The practical scope of this prohibition is broad. An employer cannot withhold tips to cover business expenses. They cannot hold tips to cover credit card processing fees beyond what the actual processing cost is. They cannot retain tips because an employee made a cash register error. And they cannot build tip withholding into their compensation structure regardless of what an employment agreement says.
Employment agreements that purport to give employers ownership of tips are void as a matter of federal law. A worker who signs a contract saying their tips belong to the employer has not legally waived their tip rights. The FLSA’s tip protections cannot be waived by private agreement.
Quick Facts on Employer Tip Rules:
- Tips belong to employees, not employers
- This rule applies whether or not the employer takes a tip credit
- Employment contracts cannot override FLSA tip protections
- Withholding tips to cover business costs is a federal wage violation
- Deducting credit card processing fees is permitted only to the extent of actual processing costs
Is It Illegal for Employers to Take Employee Tips
Yes, it is illegal for employers to take employee tips under 29 U.S.C. Section 203(m)(2)(A) of the Fair Labor Standards Act. This provision was strengthened by the 2018 Consolidated Appropriations Act and further clarified by the Department of Labor’s 2021 final rule on tip regulations, published at 86 FR 60114.
Before the 2018 change, the DOL’s regulation prohibited tip-taking only when employers used a tip credit. Courts had split on whether the FLSA protected tips when employers paid the full minimum wage. Congress resolved that split by amending the statute directly. Since 2018, the prohibition on employer tip-taking applies universally.
The DOL’s 2021 final rule provided additional detail on how the prohibition applies in practice. It clarified the definition of “manager” and “supervisor” for purposes of the tip pool exclusion, addressed how tip pools must operate, and established the civil penalty structure for violations.
Taking employee tips is treated as wage theft under federal law. The DOL’s Wage and Hour Division investigates tip theft complaints and has the authority to recover back wages for affected employees, assess civil penalties against employers, and refer egregious cases for criminal prosecution under 18 U.S.C. Section 664 (theft from employee benefit plan), though the criminal pathway is rare.
Can Your Employer Take Your Tips
Your employer cannot legally take your tips under federal law, and this protection applies regardless of your pay rate, your employment agreement, or the type of business you work for. The FLSA’s tip protection is one of the clearest worker rights in US labor law.
The situations where workers most commonly encounter unlawful tip-taking include: managers who collect and redistribute tips while keeping a share, employers who deduct customer walkouts, breakage, or register shortages from tip pools, service charge misclassification where charges that customers believe are tips never reach workers, and credit card processing deductions that exceed the actual cost the employer pays.
Employers can legally make certain deductions related to tips, but only within narrow limits. If an employer uses a tip credit, they must ensure the combination of tips and direct wages reaches the applicable minimum wage. If tips plus wages fall short, the employer must make up the difference. And an employer can deduct credit card processing fees from tips, but only the actual percentage they pay to the processor, not a rounded-up or inflated amount.
A worker who suspects their employer is taking tips should start documenting their hours, shifts, reported tips, and any discrepancies between what customers tip and what they receive. That documentation is critical for any complaint or legal action.
Key Takeaway: Employer tip-taking is a clear federal violation under the FLSA as strengthened by the 2018 Consolidated Appropriations Act. No employment contract, tip policy, or business necessity justifies an employer keeping any portion of tips that customers leave for service workers.
Is Tip Stealing Illegal
Tip stealing is illegal under federal law and most state laws, and the term applies to any employer, manager, or supervisor who takes or keeps tips that belong to employees. The FLSA is the primary federal law, but many states have additional tip protection statutes with their own remedies.
The phrase “tip stealing” covers a range of conduct. Direct confiscation, where a manager collects tips and keeps them, is the most obvious form. But indirect tip-taking through improper deductions, inflated fee offsets, or rigged tip pool arrangements is equally illegal and more commonly how violations occur in practice.
State laws on tip stealing often provide additional remedies beyond what the FLSA offers. California Labor Code Section 351 makes it unlawful for any employer or agent to take any gratuity left for an employee, and California courts have applied this broadly to cover creative schemes to avoid passing tips to workers. Violations of California’s tip law can support civil lawsuits with potential for additional penalties beyond back wages.
New York Labor Law Section 196-d prohibits employers from demanding or accepting any part of a gratuity received by an employee. New York’s law applies to all employees covered by the state’s Minimum Wage Act, and enforcement is handled by the New York State Department of Labor.
Can a Manager Keep Employee Tips
No, a manager cannot keep any portion of employee tips under federal law. The 2018 Consolidated Appropriations Act explicitly added managers and supervisors to the list of individuals prohibited from receiving tips from a tip pool. This prohibition applies regardless of whether the employer takes a tip credit.
The prohibition extends to all managers and supervisors, regardless of their job title. An employer cannot reclassify a person who exercises managerial authority as a “lead” or “senior server” to allow them to participate in a tip pool. The DOL’s 2021 final rule defines managers and supervisors based on their actual duties and authority, not their titles.
What managers can do is receive tips directly from a customer for service they personally provided. If a manager fills in as a server during a shift and customers tip them directly, those direct tips belong to the manager. What managers cannot do is receive any share of tips that other employees earned, whether through a formal tip pool or informal redistribution.
This distinction is important in full-service restaurants where managers sometimes take on service duties. The manager can keep tips from their own tables. They cannot receive a cut of the tip pool that the servers, bussers, and bartenders contribute to.
Can Employers Include Managers in Tip Pools
Employers cannot include managers or supervisors in tip pools under federal law. The 2018 Consolidated Appropriations Act banned manager participation in tip pools as part of its broader reform of FLSA tip provisions. The DOL’s 2021 final rule formalized this prohibition with specific definitions.
A “manager” or “supervisor” for FLSA tip pool purposes is someone who meets the duties test under the FLSA’s executive exemption, even if they are not exempt from overtime. The test looks at whether the person has genuine authority to hire, fire, discipline, or direct other employees. Job title alone does not determine who counts as a manager.
The reason for this prohibition is straightforward. Allowing managers into tip pools would create an obvious incentive for employers to include managers as a way to recapture a portion of tips. Congress recognized this risk and explicitly closed it by statute.
Employers who include managers in tip pools are committing a federal wage violation. The DOL can recover the full amount of tips improperly retained by the manager, and the employer faces civil penalties on top of the back pay recovery.
Quick Facts on Manager Tip Pool Rules:
- Managers and supervisors are expressly prohibited from participating in tip pools
- The prohibition applies whether or not the employer takes a tip credit
- The test for “manager” is based on duties, not job title
- Managers can receive direct tips for their own service work
- Including managers in tip pools subjects the employer to DOL back pay recovery and civil penalties
Tip Pooling Laws by State
Tip pooling laws at the state level vary significantly, and some states provide workers with stronger protections than federal law. Under the FLSA, valid tip pools must distribute tips only among employees who customarily and regularly receive tips. States can impose additional restrictions on top of this federal floor.
California prohibits tip pooling arrangements that include anyone who does not provide direct service to customers. California Labor Code Section 351 has been interpreted to restrict who can participate in a tip pool more narrowly than federal law in some respects. California courts have addressed cases where pooling arrangements were found to violate the state’s tip protection even though they might have been permissible under the FLSA.
Washington State’s tip law at RCW 49.46.020 provides strong tip protections and has been the subject of significant litigation and regulatory guidance. Oregon’s tip laws under ORS 653.035 similarly provide state-level protections that supplement federal law.
Minnesota is one of several states that prohibit employers from using a tip credit entirely. In Minnesota, tipped employees must receive the full state minimum wage before tips. Minnesota Statute 177.24 contains these protections. Nevada, Oregon, Alaska, California, and Washington similarly prohibit or severely restrict tip credits at the state level.
| State | Tip Credit Permitted | Manager Tip Pool | State Tip Statute |
|---|---|---|---|
| California | No | Restricted | Labor Code 351 |
| New York | Yes (limited) | Prohibited | Labor Law 196-d |
| Washington | No | Follows FLSA | RCW 49.46.020 |
| Oregon | No | Follows FLSA | ORS 653.035 |
| Minnesota | No | Follows FLSA | Stat. 177.24 |
| Nevada | No | Follows FLSA | NRS 608.160 |
| Texas | Yes | Follows FLSA | Texas Labor Code 203.012 |
FLSA Tip Rules 2026
FLSA tip rules in 2026 reflect the framework established by the 2018 Consolidated Appropriations Act and the Department of Labor’s 2021 final rule, both of which significantly modernized and clarified how tips are treated under federal law. These rules have been in effect long enough that employers have no excuse for non-compliance, yet violations remain common.
The current FLSA tip framework has four core components. First, tips belong to employees, not employers, and this applies universally regardless of whether a tip credit is used. Second, managers and supervisors are prohibited from participating in tip pools. Third, employers who do not take a tip credit may establish mandatory tip pools that include back-of-house employees. Fourth, employers who do take a tip credit may only include front-of-house employees who customarily receive tips in the pool.
The distinction between tip credit and non-tip credit employers matters enormously for tip pool composition. Before 2018, back-of-house workers like cooks and dishwashers were effectively excluded from all tip pools. The 2018 amendment allows non-tip credit employers to include back-of-house workers in tip pools. This was a major policy change that allowed restaurants paying full minimum wage to share tips more broadly among all staff.
The DOL’s Wage and Hour Division enforces these rules through complaint investigations, audits, and targeted enforcement in industries with high violation rates, particularly food service, hospitality, and personal care services.
What Is a Tip Credit
A tip credit is a provision in the Fair Labor Standards Act that allows employers to pay tipped employees a lower direct cash wage, as low as $2.13 per hour at the federal level, as long as tips bring the employee’s total compensation up to at least the federal minimum wage of $7.25 per hour. If tips do not bring total pay to the minimum wage, the employer must make up the difference.
The tip credit is not available to all employers. About half the states require employers to pay tipped employees the full state minimum wage regardless of tips, effectively eliminating the tip credit in those states. In states without a tip credit, the FLSA’s $2.13 rate does not apply.
Using a tip credit comes with additional legal obligations. Employers must notify employees that they are being paid under the tip credit system. The notification must be clear and must be given before the tip credit arrangement begins. Employers who fail to properly notify employees cannot use the tip credit and owe the difference between the $2.13 rate and the full minimum wage for all hours worked.
The tip credit is also contingent on employees actually receiving enough tips to meet the minimum wage. If tips fall short on any workweek, the employer owes additional wages to cover the gap. Failing to do this is a separate FLSA violation.
Key Takeaway: The FLSA allows a tip credit that reduces direct wages to as low as $2.13 per hour, but the employer must ensure total compensation reaches minimum wage, must notify employees, and can only run certain tip pools depending on whether the tip credit is used.
Tip Credit Laws by State
Tip credit laws vary significantly by state, and many states have eliminated or restricted the tip credit in ways that provide tipped workers more baseline protection than federal law. As of 2026, at least nine states require employers to pay tipped employees the full state minimum wage before tips are considered.
California pays one of the highest tipped employee minimum wages in the country because it prohibits the tip credit entirely. California’s minimum wage applies to all workers regardless of tips. New York allows a limited tip credit but sets strict rules on the amount, and New York City’s rules are even more protective than the state standard.
States that have retained the federal $2.13 tip credit as their state standard include Georgia, Indiana, Kansas, and several others where the federal floor controls. States with their own higher tip credit rates include Michigan, which requires a specific minimum hourly cash wage for tipped employees above the federal rate.
| State | Tipped Employee Cash Wage | Tip Credit Available | Full Min. Wage Required |
|---|---|---|---|
| Federal | $2.13/hour | Yes | $7.25/hour |
| California | Full state min. wage | No | Yes |
| New York | Varies by region/industry | Yes (limited) | Partial |
| Washington | Full state min. wage | No | Yes |
| Oregon | Full state min. wage | No | Yes |
| Minnesota | Full state min. wage | No | Yes |
| Nevada | Full state min. wage | No | Yes |
| Texas | $2.13/hour (follows federal) | Yes | $7.25/hour |
Service Charge vs Tip Law
A service charge is legally distinct from a tip, and the distinction has major consequences for employer control over the money and for workers’ rights. A tip is a voluntary payment made by a customer that the customer intends to benefit the worker. A service charge is a mandatory fee set by the employer that is part of the price of the service.
Under federal law, tips belong to the employees who received them and cannot be kept by the employer. Service charges, by contrast, belong to the employer when received and can be distributed to employees, retained, or used for business expenses at the employer’s discretion. An employer can legally keep all of a mandatory service charge and pay workers nothing from it.
The legal test courts apply to determine whether a payment is a tip or a service charge looks at four factors: whether payment is voluntary or mandatory, whether the amount is dictated by the customer or the employer, to whom the payment is made, and who has the right to determine how it is distributed.
Restaurants have faced litigation for adding mandatory “service charges” to bills while representing to customers that the charge goes to the staff. If customers are misled into believing a mandatory charge is a gratuity that goes to workers, the employer may face consumer protection claims in addition to any wage law exposure.
Service charge vs tip comparison:
- Tip: voluntary, customer-determined amount, belongs to employee
- Service charge: mandatory, employer-determined amount, belongs to employer
- Employer control: employer cannot keep tips; employer can keep service charges
- Worker’s right: tips are property of the receiving employee; service charges are not
- Tax treatment: tips and service charges are taxed differently for both employer and employee
Back of House Tip Pooling
Back-of-house employees, including cooks, dishwashers, and kitchen staff, can now be included in tip pools in certain circumstances after the 2018 Consolidated Appropriations Act changed federal law. Before 2018, back-of-house workers were effectively excluded from tip pools because the FLSA’s tip pool rules only allowed customarily tipped employees to participate.
The 2018 change applies specifically to employers who do not take a tip credit. If an employer pays all workers the full minimum wage or higher without using the $2.13 tip credit rate, that employer can include back-of-house workers in a tip pool. This allows restaurants paying full wages to distribute tips among the entire service team including kitchen staff.
Employers who do take a tip credit cannot include back-of-house workers in a mandatory tip pool. For these employers, the pool must be limited to employees who customarily and regularly receive tips, which typically means front-of-house workers like servers, bussers, and bartenders.
The rationale behind this distinction is that the tip credit system was built around the idea that tipped employees supplement their lower base wage with tips. Requiring those employees to share tips with non-tipped employees undermines the wage structure the tip credit was designed to support.
Can Employers Keep Credit Card Tips
Employers can deduct a portion of credit card tips to cover their actual credit card processing costs, but they cannot keep tips or deduct amounts beyond the actual processing cost. This is one of the more commonly misunderstood aspects of tip law, and it is an area where violations are frequent.
When a customer tips on a credit card, the employer pays a processing fee to the payment processor, typically ranging from 1.5% to 3.5% of the transaction. Federal law and DOL guidance permit employers to deduct this actual cost from the employee’s credit card tip. An employer paying a 2.5% processing fee on a $10 tip can deduct $0.25 from the employee’s tip.
What employers cannot do is round up the deduction, charge a flat processing fee above their actual cost, or use the credit card processing deduction as a way to skim money from employee tips. An employer who charges employees 5% of credit card tips for processing when the actual processor rate is 2.5% is committing a tip violation for the excess amount.
Some states have more protective rules. California courts have addressed credit card tip deductions, and several decisions have found that California Labor Code Section 351 limits what deductions employers can make from tips, requiring that the employee receive the full tip amount without any deduction in some circumstances. California employers should be aware that state law may be more restrictive than federal law on this point.
Tip Laws for Restaurants
Restaurant tip laws cover the full range of issues from tip credits to tip pools to service charges, and the restaurant industry has historically been the focus of the most significant FLSA tip enforcement actions. Restaurants employ the largest share of tipped workers in the United States.
The National Restaurant Association and various restaurant groups have lobbied extensively over the FLSA’s tip rules, and the 2018 law changes represented a compromise that gave non-tip credit employers new flexibility with tip pools while maintaining strong employee protections. Despite these changes, tip-related violations remain among the most common wage theft issues DOL’s Wage and Hour Division investigates.
Restaurant tip violations the DOL frequently investigates include: managers participating in tip pools, employers taking a share of tips to cover operational costs, tip credit usage without proper employee notification, failure to cover minimum wage gaps when tips fall short, and mandatory service charges being misrepresented to customers as tips.
The restaurant industry’s tip law exposure is heightened by the fact that workers often lack documentation of what tips they actually earned. Cash tips are harder to track than credit card tips, and employers who deal primarily in cash have more opportunity to underreport what employees received.
Restaurant tip law compliance checklist:
- Do not take or keep any portion of employee tips
- Ensure managers and supervisors are excluded from tip pools
- If using tip credit, notify employees before the arrangement begins
- Ensure tip plus direct wages equals at least minimum wage every workweek
- Deduct credit card processing fees only at the actual processing rate
- Document tip income accurately for payroll tax purposes
- If running a non-tip credit tip pool, ensure back-of-house inclusion is properly structured
Penalty for Stealing Employee Tips
The penalty for stealing employee tips under federal law includes back wages for all tips taken, liquidated damages in an equal amount effectively doubling the recovery, and civil money penalties assessed by the Department of Labor. In willful cases, the statute of limitations extends from two to three years, allowing workers to recover more.
The back wages component is the amount of tips the employer took or withheld. If an employer took $5,000 in tips from a worker over two years, the back wage recovery is $5,000. Liquidated damages under 29 U.S.C. Section 216(b) add an equal amount, bringing the total to $10,000 for the same violation. Employers can avoid liquidated damages only if they demonstrate they acted in good faith and had reasonable grounds to believe their actions were lawful. This defense is rarely successful in clear tip-taking cases.
The DOL can also assess civil money penalties of up to $1,100 per violation against employers who violate FLSA tip provisions. For employers who engage in widespread tip theft affecting many employees across many pay periods, the total civil penalty exposure can be substantial.
Workers can pursue their claims through the DOL’s Wage and Hour Division or by filing a private lawsuit directly. The FLSA’s private right of action at 29 U.S.C. Section 216(b) allows workers to sue for back wages, liquidated damages, and attorney’s fees.
Bold fact: An employer who steals employee tips faces back wages plus an equal amount in liquidated damages under 29 U.S.C. Section 216(b), effectively doubling the financial recovery for affected workers, plus DOL civil penalties of up to $1,100 per violation.
| Recovery Type | Amount | Authority |
|---|---|---|
| Back wages | Full amount of tips taken | 29 U.S.C. 216(b) |
| Liquidated damages | Equal to back wages (doubles recovery) | 29 U.S.C. 216(b) |
| Civil money penalty (DOL) | Up to $1,100 per violation | 29 CFR 578.3 |
| Attorney’s fees | Recoverable in successful suit | 29 U.S.C. 216(b) |
| Statute of limitations | 2 years (3 years if willful) | 29 U.S.C. 255(a) |
How to Recover Stolen Tips From Employer
Workers who have had tips stolen by an employer can recover those tips through two main channels: filing a complaint with the DOL’s Wage and Hour Division or filing a private lawsuit in federal court. Both options are available under the FLSA, and they can produce the same remedies.
The DOL complaint process is free and does not require an attorney. A worker files a complaint with their regional WHD office, providing details about the employer, the tip amounts taken, and the time period involved. The WHD investigates, and if violations are found, it attempts to recover back wages for the affected employees. The WHD can also assess civil penalties against the employer.
One limitation of the DOL complaint process is that workers who accept a DOL settlement for back wages may give up their right to separately sue for liquidated damages. Workers who believe their tip theft was significant should understand that accepting a DOL back wage payment typically includes a release of claims.
A private lawsuit allows the worker to recover back wages, liquidated damages, and attorney’s fees. Class action lawsuits for tip theft are common in the restaurant industry, where the same tip-stealing policy often affects many workers simultaneously. Plaintiff-side attorneys frequently take these cases on contingency, meaning the worker pays nothing unless they win.
State law claims can run alongside federal claims. Workers in California, New York, and other states with strong tip laws can file state agency complaints or state court claims in addition to federal FLSA claims. State law remedies sometimes exceed what the FLSA provides.
Key Takeaway: Workers whose tips were stolen can recover double the stolen amount through the FLSA’s liquidated damages provision, file for free with the DOL, or join class actions where attorneys take cases on contingency. Multiple recovery pathways exist for every tip theft situation.
How to Report an Employer for Taking Tips
Reporting an employer for taking tips starts with filing a complaint with the US Department of Labor’s Wage and Hour Division, which is the federal agency responsible for enforcing FLSA tip provisions. The process is free, can be done online or by phone, and workers can file confidentially.
Before filing, workers should gather as much documentation as possible. This includes pay stubs showing tip amounts reported by the employer, personal records of tips received from customers during shifts, credit card tip receipts if available, any written tip policies the employer distributed, and notes of conversations where managers discussed the tip arrangement.
The WHD accepts complaints online through its website, by calling 1-866-4-USWAGE, or by visiting a local WHD office. Workers do not need to provide a specific dollar amount at the time of filing. The WHD will investigate and calculate the violation amount as part of its process.
For state law claims, workers should contact their state’s labor department. California workers file with the California Labor Commissioner’s Office. New York workers contact the New York State Department of Labor Division of Labor Standards. Washington workers file with the Washington Department of Labor and Industries.
Workers who face retaliation for reporting tip theft, including termination, demotion, or reduced hours, have a separate FLSA retaliation claim. Retaliation for filing a wage complaint is unlawful under 29 U.S.C. Section 215(a)(3), and workers who experience it can add a retaliation claim to their existing tip theft case.
Frequently Asked Questions
Can an employer legally take a portion of employee tips?
No, an employer cannot legally take any portion of employee tips under the Fair Labor Standards Act.
The prohibition at 29 U.S.C. Section 203(m)(2)(A) applies to all employers, regardless of whether they use a tip credit.
The only permissible tip-related deduction is the actual credit card processing cost when a tip is paid by card.
Employment contracts or policies that give employers ownership of tips are void under federal law.
What is the penalty for an employer who withholds employee tips?
The penalty includes back wages for all tips taken plus an equal amount in liquidated damages, effectively doubling the worker’s recovery.
The Department of Labor can also impose civil money penalties of up to $1,100 per violation.
The statute of limitations is two years for ordinary violations and three years if the violation was willful.
Workers can pursue these remedies through a free DOL complaint or by filing a private lawsuit in federal court.
Can managers be included in a tip pool under federal law?
No, managers and supervisors cannot participate in tip pools under federal law.
The 2018 Consolidated Appropriations Act explicitly added this prohibition to the FLSA.
The determination of who is a “manager” is based on actual duties and authority, not job title.
Managers can receive direct tips from customers for service they personally performed, but they cannot receive a share of the tip pool.
What is the difference between a tip and a service charge legally?
A tip is a voluntary payment made by a customer that belongs to the employee under federal law.
A service charge is a mandatory fee set by the employer that belongs to the employer when received.
Employers can keep service charges and use them for any business purpose, including paying staff.
Employers cannot keep any portion of customer tips, regardless of whether the service charge exists.
How do you report an employer for stealing tips?
File a free complaint with the US Department of Labor’s Wage and Hour Division online, by phone at 1-866-4-USWAGE, or at a local WHD office.
Document pay stubs, personal tip records, credit card receipts, and any written tip policies before filing.
Workers in states like California and New York can file parallel complaints with their state labor agencies for additional state law remedies.
Retaliation for filing a tip theft complaint is separately illegal under the FLSA and can be added to the original claim.
Closing
Tip theft is one of the most common and most well-documented forms of wage theft in the United States. The law is clear, the remedies are real, and workers who have had tips taken from them have multiple enforceable paths to get that money back.
Bookmark this article and share it with anyone in a tipped industry who suspects their employer is keeping money that belongs to them. The rules changed significantly in 2018 and 2021, and knowing the current law is the first step toward enforcing it in 2026.
