Skip to content

What the Law Says About Service Tipping

February 13th, 2023 Casey Liu

The United States is well known for its unique culture of service tips. Though it is not legally required, it is conventional for customers to pay service workers tips of fifteen to twenty percent of their base cost, especially in the restaurant industry. In many states, tips can be included as “credits” toward the Federal Minimum Wage, so many servers and food industry workers can legally be paid at a rate of $2.13 per hour before tips.

Federal labor laws protect tips designated for employees. Employers, managers, and supervisors are not permitted to keep employee tips, and are required to redistribute any tips collected in a pool to their employees within the pay period. In 2018, Congress amended parts of the Federal Labor Standards Act (FLSA), adding a section that “prohibits employers from keeping their employees’ tips ‘for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips’ even if they do not claim a tip credit. ” The amendments also gave the Department of Labor power to recover tips unlawfully kept by an employer and the right to impose civil penalties. 

Depending on the format of the tips, different rules may apply to the amount of tips owed to the employees. If paid in cash, an employee is entitled to receive their tips in the full amount. However, paying and tipping using credit cards has become standard practice amongst customers. To account for the fees incurred from credit card processing, employers will deduct the card fee from the employees’ tips, but this practice is illegal in some states such as California. Under New York State Law, however, employers are permitted to deduct the employee’s share of the credit card processing fee from their tips.


Tip Disputes

Given that tips often make up the majority of service workers’ income, the distribution of tips in a fair and timely manner is integral to service employees. However, across the United States, many disputes from deceptive or unlawful tipping practices have arisen between service employers and their employees. 

Nobu, one of the most well-known high-end restaurant chains, recently had bartenders walk out of their shifts at their biggest location in Las Vegas. No further details have emerged from this incident, but Nobu is not a stranger to improper tipping practices. In 2007, a federal lawsuit was filed by two waiters who alleged that they were forced to share tips with their managers and were not properly compensated for their overtime hours. The case was settled in 2009 – with the court ordering the chain to pay $2.5 million to hundreds of workers. 


Seek Legal Assistance Today 

Wage theft is a serious issue that can and should be challenged. If you feel that your tipping rights as a worker have been violated, contact The Working Solutions Law Firm! Our employment lawyers are located in New York City and in Livingston, New Jersey. Contact us today at (646) 453-5878 to schedule a free case evaluation and receive experienced legal counsel. 

Expert attorneys at our law firm specialize in many areas of the law, including FMLA and unpaid wages and overtime. Whatever your employment issue is, please reach out for a consultation today.