Is Withholding Tips From Employees Illegal?

Under the Fair Labor Standards Act, tips belong to the employee who earned them, and employers generally cannot keep any portion for themselves.

Employers may only redistribute tips through a legally compliant tip pool shared among eligible employees, not managers or owners.

States may impose additional protections beyond federal law, so the exact rules can vary depending on where you work.

Withholding tips crosses into illegal territory when an employer:

• Keeps any portion of tips for the business rather than passing them fully to eligible employees.
• Includes managers or supervisors in a tip pool, which federal law generally prohibits.
• Uses tips to cover cash register shortages or breakages, deducting these from what employees earned.
• Fails to make up the difference when a tipped employee's combined wages and tips fall below minimum wage, in jurisdictions using a tip credit.
• Retaliates against employees who report tip violations to the Department of Labor.

See also: is sharing salary information illegal and can you be fired for refusing overtime for related workplace rights topics.

Certain tip-related practices are legal:

• Valid tip pooling among employees who customarily receive tips, such as servers and bartenders sharing tips with bussers.
• Service charges, which are not legally considered tips and can be kept by the employer if properly disclosed to customers.
• Credit card processing fee deductions on tips, which some states allow employers to subtract proportionally.
• Employer contributions to a tip pool that are voluntary and don't reduce what an employee would have otherwise received.
• Mandatory tip pools among non-managerial staff, as long as the pool is distributed fully among eligible employees.

Employers who illegally withhold tips face significant liability:

• Back pay: Employers must repay all improperly withheld tips to affected employees.
• Liquidated damages: Courts can award an amount equal to the back pay owed, effectively doubling it.
• Civil penalties: Up to $1,100 per violation for repeated or willful violations under federal law.
• Attorney's fees: Employers found liable often must cover the employee's legal costs in a lawsuit.
• State penalties: Many states impose their own fines on top of federal remedies.

Employees who suspect tip violations often first raise the issue internally with management or human resources, which can resolve straightforward misunderstandings.

If the issue isn't resolved, workers can file a complaint with the Department of Labor's Wage and Hour Division, which investigates and can order repayment.

Employees may also file a private lawsuit, sometimes as part of a class action if multiple workers were affected by the same illegal tip policy. Restaurant chains have faced multimillion-dollar settlements in class actions over illegal tip pooling practices.

• Track your tips and hours carefully so you have documentation if a dispute arises.
• Review your pay stubs to confirm tips are being credited correctly against any tip credit.
• Ask for a written tip pool policy from your employer to understand how tips are distributed.
• Report violations to the Department of Labor if internal conversations don't resolve the issue.
• Know your state's specific tip laws, since some offer stronger protections than federal minimums.
• Consult an employment attorney if a large sum is at stake or a pattern of violations affects multiple coworkers.
• See also: can employers track your location legally for other workplace rights questions.