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Can Your Employer Keep Your Tips?

By Javaria Sagheer · Updated October 2026
TL;DR No — under federal law your employer cannot keep your tips, and neither can a manager or supervisor. That is true whether you earn a lower tipped wage or the full minimum wage. Only three things are allowed: counting your tips toward the minimum wage through a tip creditTip credit: the part of the minimum wage an employer is allowed to cover with your tips instead of its own money. Under federal law it can be up to $5.12 an hour. Some states do not allow it at all. where your state permits it, running a lawful tip poolTip pool: an arrangement where tipped workers put some or all of their tips into a shared pot that is divided among employees. Employers, managers and supervisors may not take money out of it. among employees, and — under federal law — subtracting the card company’s actual processing fee from a charged tip. A mandatory service chargeService charge: a fee the business adds to the bill that the customer has to pay, such as an automatic 18 percent on large parties. Federal law does not treat it as a tip. is not a tip under federal law. Your state can add stronger rules, so where you work matters.

Closing Time, a Short Envelope, and the Question of Who Owns a Tip

It is 11 p.m. on a Friday. You have carried plates for seven hours, and your checkout slip says customers left you $148. The envelope you are handed has $119 in it. When you ask why, the answers come quickly: three percent for card fees, a share for the kitchen, a share for the shift manager who helped on the floor, and $12 for the table that walked out without paying. Some of those subtractions can be legal. Others are not — and one is banned by a single sentence of federal law. Here is how to tell them apart, what your state may add, and what to do, step by step, when the numbers do not add up.

Can Your Employer Keep Your Tips? The Short Answer

The federal wage law is the Fair Labor Standards Act (FLSA). Since 2018 it has contained this sentence, at 29 U.S.C. § 203(m)(2)(B): “An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” The last clause matters: the ban protects a server paid $2.13 an hour and a barista paid $17 an hour alike. Labor Department regulations list the only things an employer may do with your tips (29 CFR § 531.52): hand them to the employee who earned them, require employees to share them in a tip pool that follows the rules, or count them toward the minimum wage through the tip credit. Federal law lets an employer pay a tipped employee a cash wage as low as $2.13 an hour and count up to $5.12 an hour of tips toward the $7.25 federal minimum wage. That is allowed only if the employer explained the rules in advance. If your tips do not bring you to $7.25, the employer has to make up the difference. State law can be stricter. The Labor Department’s state table lists Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington as requiring the full state minimum wage before tips. Others set a higher cash wage, limit who can share a pool, or ban the card-fee deduction.

Tip Situations at Work, One by One

Situation 1 · The tip credit Paid $2.13 an hour — legal only with notice and a make-up guaranteeBefore using the tip credit, the employer must tell you the cash wage it will pay, the amount of credit it is claiming, that the credit cannot exceed the tips you actually receive, that your tips are yours except for a valid tip pool, and that the credit does not apply unless you have been told all this (29 CFR § 531.59). The Labor Department says the notice may be spoken or written.

No notice means no tip credit, and the full minimum wage is owed in cash. Overtime is figured on the full minimum wage, not on $2.13.

Situation 2 · The tip pool Sharing tips with coworkers — who may be in the poolAn employer may require you to pool tips, and who can share depends on how you are paid (29 CFR § 531.54). If the employer takes a tip credit, the pool is limited to employees who customarily and regularly receive tips — the Labor Department’s examples include waiters, bussers and service bartenders — and the employer must tell you the required contribution.

If the employer pays the full minimum wage and takes no tip credit, federal law lets the pool include cooks and dishwashers. In both kinds of pool, the employer, managers and supervisors receive nothing, and collected tips must be paid out no later than the regular payday for that pay period.

Situation 3 · Managers The manager or supervisor who takes a shareA manager or supervisor may not keep any part of other employees’ tips or be paid from a tip pool. The title does not decide who counts. DOL Fact Sheet #15B uses a duties test: the person’s primary duty is management, they regularly direct at least two full-time employees or the equivalent, and they have real say in hiring and firing. An owner with at least a 20 percent stake who actively manages the business also counts.

One narrow exception: a manager may keep a tip received directly from a customer for service the manager directly and solely provided, such as a supervisor who delivers a pizza herself. A manager who only helps at your table cannot take a share.

Situation 4 · Card fees and service charges The three percent, and the “automatic gratuity”Under federal law, when a customer tips on a card and the employer pays the card company a percentage fee, the employer may subtract that same percentage from the tip. It cannot take more than the actual fee or pull you below the minimum wage, and the tip is due no later than your regular payday (DOL Fact Sheet #15). Some states do not allow the deduction.

A compulsory charge the business adds to the bill — the regulation’s example is 15 percent — is not a tip under the FLSA (29 CFR § 531.55). It belongs to the business, and if the employer passes it to you, it counts as wages.

Situation 5 · Walkouts and breakage Being charged for the table that left without payingWhere an employer claims the tip credit, the Labor Department says deductions for walkouts, breakage or cash register shortages are illegal, because any such deduction would drop the tipped employee’s wages below the minimum wage. Taking the money from your tips instead is no better: covering business losses is not a permitted use of tips under 29 CFR § 531.52.

If you are paid above the minimum wage with no tip credit, the answer depends more on your state’s wage-deduction law. Rules on uniform charges also vary, so ask your state labor agency.

How six states handle tips, as of October 2026:
  • California — Labor Code § 351, as explained by the state Labor Commissioner: tips belong to the employees who received them. There is no tip credit, so the full state minimum wage ($16.90 in 2026) is owed before tips, and card-fee deductions are not allowed. Owners, managers and supervisors may not share in a pool.
  • New York — Labor Law § 196-d bars an employer or its agents from demanding or accepting any part of an employee’s gratuities, or keeping any charge “purported to be a gratuity.” A tip credit is allowed in hospitality: a New York City food service worker must get at least $11.35 in cash, with a tip allowance of up to $5.65 toward $17.00. Rates differ by region.
  • Illinois — 820 ILCS 115/4.1: “Gratuities to employees are the property of the employees, and employers shall not keep gratuities.” A proportionate card-fee deduction is allowed. The tip credit is capped at 40 percent of the $15.00 minimum, leaving a $9.00 cash wage.
  • Florida — the state constitution set the minimum wage to reach $15.00 on September 30, 2026, and employers may count up to $3.02 an hour of tips toward it. The Labor Department’s state table, last revised July 1, 2026, still shows the earlier figures (a $10.98 cash wage on a $14.00 minimum), so confirm the current tipped rate with FloridaCommerce, the state agency that publishes it. Fla. Stat. § 448.110 requires written notice to the employer and 15 calendar days to pay before a state-law suit.
  • Texas — Texas Labor Code § 62.052 adopts the federal tipped-wage rule, so the numbers are the federal ones: a $2.13 cash wage and a tip credit of up to $5.12 toward $7.25. The federal ban on keeping tips applies.
  • Massachusetts — G.L. c. 149, § 152A: tips and service charges may be shared only among wait staff employees, service employees and service bartenders, and no one with managerial responsibility qualifies. The tipped cash wage is $6.75 on a $15.00 minimum.
To check your own state, search your state labor department’s website for “tipped minimum wage” and “tip pooling,” or start with the U.S. Labor Department’s state table linked in Sources.

What to Say When Your Tips Come Up Short

Ask for the policy, keep your own count, put it in writing
When you start a tipped job, or the first time a payout looks wrong:

“Could I have the tip pool policy in writing? I’d like to know who is in the pool and what share each position receives.”

When your payout does not match your own count:

“My slip showed $148 in tips on Friday and I received $119. Can you walk me through each deduction?”

When a manager or supervisor is taking a share:

“My understanding is that federal law doesn’t allow managers or supervisors to take part of employees’ tips. Can we look at how the pool is divided?”

If the conversation goes nowhere, follow up the same day by email or text:

“I’m writing to confirm our conversation today about my tips for the week of [date]. I’m asking for a written explanation of the deductions and for any tips I’m owed.”

Stay calm and specific, and keep a copy of everything you send. Do not take money from the register or the tip jar yourself. Federal law bars an employer from retaliating against you for filing a wage complaint — a protection that applies even where you can otherwise be fired for no reason.
What to do if your employer is keeping your tips:
  1. Track your tips every shift. Write down the date, hours, cash tips, card tips, and what you paid into a pool.
  2. Keep every pay stub. For each workweek, add cash wages and tips and divide by hours. A result under $7.25, or your state’s higher rate, means your employer owes the difference.
  3. Ask for the tip pool policy in writing. When an employer takes a tip credit, the federal regulation requires it to tell you the required contribution.
  4. Raise the problem in writing. Send a short, polite message to the owner or general manager and keep a copy.
  5. File a complaint. Call the U.S. Labor Department’s Wage and Hour Division at 1-866-487-9243 or use its complaint page. The agency says it does not disclose who complained. Your state labor agency takes complaints under state law.
  6. Watch the deadline. A federal claim must be brought within two years of the violation, or three years if it was willful (29 U.S.C. § 255(a)). State deadlines differ, so do not wait.

Your Tips: What Your Employer Can vs. Can’t Do

✓ YOUR EMPLOYER CAN

  • Pay a cash wage as low as $2.13 an hour under federal law, with advance notice, where state law allows a tip credit
  • Require you to share tips with other employees in a tip pool
  • Include cooks and dishwashers in the pool, under federal law, if it takes no tip credit
  • Subtract the card company’s actual fee from a charged tip, unless state law forbids it
  • Keep a mandatory service charge under federal law, unless state law says otherwise

✗ YOUR EMPLOYER CAN’T

  • Keep any part of your tips for the business
  • Let managers or supervisors take from the tip pool
  • Use the tip credit without explaining it in advance
  • Deduct more than the actual card fee, or hold tips past your regular payday
  • Charge walkouts, breakage or register shortages to a worker paid with the tip credit
  • Retaliate against you for filing a wage complaint
The service charge point: an “18% gratuity added” line is not a tip under federal law, so it is the employer’s money unless the employer passes it on. State law can change that: the Massachusetts statute directs service charges to service staff unless the business clearly tells customers the fee is not a tip.

Tip Law Myths, Corrected

Myth: “Customers pay the restaurant, so the tips belong to the restaurant.”
False. Federal law says an employer may not keep tips received by its employees for any purposes.
Myth: “My manager works the floor too, so the manager gets a cut of the pool.”
False. A manager or supervisor may not receive anything from a tip pool. The only tips a manager may keep are those a customer gives directly for service the manager alone provided.
Myth: “I agreed to $2.13 an hour, so that is all my employer ever owes me.”
False. If cash wages plus tips fall short of the minimum wage, the employer must pay the difference. If it never explained the tip credit, it cannot use the credit at all.
Myth: “There is no tax on tips now, so I don’t have to report them.”
False. The 2025 federal law created an income-tax deduction for qualified tips, not an exemption from reporting. You still report tips, and you claim the deduction on your return.

Tip Questions People Actually Ask

Tap a question to open it.
Can my employer take credit card processing fees out of my tips?
Under federal law, yes, but only the actual fee. If the card company charges 3 percent, the employer may pay you 97 percent of a charged tip. State law may forbid it: California’s Labor Commissioner says the full tip must be paid with no deduction for processing fees, while Illinois allows a proportionate one.
Can a manager or shift supervisor take a share of the tip pool?
No. Federal law bars managers and supervisors from keeping any portion of employees’ tips or receiving tips from a pool. Whether a shift lead counts depends on duties, not the title: managing as a primary duty, directing at least two full-time employees, and having real influence over hiring and firing.
Can cooks and dishwashers be included in a tip pool?
Under federal law, only if the employer pays the full minimum wage and takes no tip credit. If it takes a tip credit, the pool must be limited to employees who customarily and regularly receive tips. State law can be narrower: Massachusetts limits tip sharing to wait staff employees, service employees and service bartenders.
Is an automatic gratuity or service charge legally a tip?
Not under federal law. A compulsory charge added to the bill is not a tip under the FLSA, so the employer may keep it, and if the employer pays it to you it counts as wages. The IRS also treats it as non-tip wages. State law can differ, as in Massachusetts.
Can my employer make me pay for a walkout, a broken dish, or a short register?
Not if your employer pays you using the tip credit. The Labor Department says those deductions are illegal in that situation because they would reduce a tipped employee’s wages below the minimum wage. Otherwise, the answer depends more on your state’s wage-deduction law.
When does my employer have to pay me my credit card tips?
Under federal law, no later than your regular payday. Some states set their own deadline: California requires card tips by the next regular payday after the customer authorized the charge, and Illinois makes it a violation to pay tips more than 13 days after the pay period ends.
Do I still have to report tips and pay tax on them in 2026?
Yes, you still report them. The federal law enacted in 2025 lets eligible workers deduct up to $25,000 of qualified tips a year for tax years 2025 through 2028. The deduction phases out above $150,000 of modified adjusted gross income ($300,000 on a joint return). The IRS still requires employees to report cash tips of $20 or more in a month to their employer by the 10th of the next month, and it lists tips as subject to Social Security and Medicare taxes.
What can I recover if my employer kept my tips, and how long do I have?
Under federal law you can recover the tips that were kept, any tip credit the employer took, and an equal amount as liquidated damages. If you win in court, the employer also pays a reasonable attorney’s fee. The deadline is two years from the violation, or three years if it was willful.

Tip Law: Key Terms, Explained

Tip — money a customer chooses to give in recognition of service.
Tipped employee — under federal law, a worker in a job where they customarily and regularly receive more than $30 a month in tips.
Tip credit — the amount of your tips an employer counts toward the minimum wage: up to $5.12 an hour under federal law, on top of a cash wage of at least $2.13.
Tip pool — a shared pot of tips divided among employees, never including the employer, managers or supervisors.
Service charge — a compulsory fee added by the business. Under federal law it is not a tip.
Liquidated damages — an added amount equal to the tips and wages owed, awarded on top of the money itself.

The Law Behind Your Tips

Tip rights come from statutes and regulations rather than a well-known court case. The documents are linked in Sources.
29 U.S.C. § 203(m)(2)(B) — the tip-keeping banThe sentence Congress added to the Fair Labor Standards Act in 2018: an employer may not keep employees’ tips for any purposes, or let managers or supervisors keep them, whether or not it takes a tip credit.
29 U.S.C. § 203(m)(2)(A) and 29 CFR § 531.59 — the tip credit and its notice ruleThe statute permits a $2.13 cash wage with tips covering the rest of the minimum wage. The regulation lists what the employer must tell you first.
29 CFR §§ 531.52, 531.54 and 531.55 — tips, pools and service chargesThese regulations list what an employer may do with tips, set the rules for pools with and without a tip credit, and state that a compulsory service charge is not a tip.
29 U.S.C. § 216(b) and (e) — remedies and penaltiesAn employer that keeps tips owes the tips, any tip credit taken, and an equal amount in liquidated damages, plus attorney’s fees. The Labor Department may also assess a civil penalty. The statute says up to $1,100 per violation, and the inflation-adjusted figure in 29 CFR § 578.3 is $1,409.

Tip Law That’s Still Moving

The edges to watch as of October 2026:
  1. The tips tax deduction is temporary. The IRS describes it as applying to tax years 2025 through 2028. It changes how tips are taxed, not who owns them.
  2. Side work at the tipped wage. A 2021 Labor Department rule on untipped side work was vacated by a federal court in 2024, and in December 2024 the Department restored the earlier “dual jobs” regulation. States can set their own limit: New York bars the tip credit when a hospitality worker spends more than two hours, or 20 percent of the shift, on non-tipped duties.
  3. State tipped wages change on set dates. California’s rate took effect January 1, 2026, and Florida’s constitution set a step to $15.00 on September 30, 2026. Check your state’s current figure.
When these move, this article gets updated.
One important note: this article leads with federal law, which applies in every state where the FLSA covers the job. Your state can go further — a higher cash wage, no tip credit, tighter pool rules, or a ban on card-fee deductions. Our guide to how federal law and state law fit together explains the layering. The six states above are examples, so look up your own state’s rule before relying on a number here.

The Bottom Line on Whether Your Employer Can Keep Your Tips

A tip is yours. Federal law lets your employer do three things with it — count it toward the minimum wage after explaining the rules, pool it among employees, and subtract the card company’s actual fee — and nothing else. Managers and supervisors stay out of the pool. If the numbers do not add up, ask for the policy, put your question in writing, and call the Wage and Hour Division or your state labor agency before the deadline runs. Now you know.
The wage underneathWhat is the minimum wage for teens? → The other pay problemCan your boss make you work off the clock? → The whole subjectExplore Teen & Young Adult →

Sources

Primary sources:

LawJustic is for educational purposes only and does not provide legal advice. Tip and wage law varies by state and city, and rates change every year. If you believe tips or wages were kept from you, contact the U.S. Department of Labor’s Wage and Hour Division, your state labor agency, or a licensed employment attorney. Last reviewed: October 2026.

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