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When it comes to tipped employees, few issues create more confusion—and more lawsuits—than who legally owns the tips. The Fair Labor Standards Act (FLSA) sets strict rules about how tips must be handled, when employers can take a “tip credit,” and whether managers or non-tipped staff may participate in tip pools. Recent amendments and Department of Labor (DOL) guidance have also tightened restrictions on tip retention, increasing the stakes for compliance.
Below is a clear breakdown of the current legal landscape governing tips under the FLSA.
Who Owns the Tips?
Under the FLSA, tips are the property of the employee who receives them.
This baseline rule applies regardless of whether the employer takes a tip credit, pays full minimum wage, or uses a tip pool. Employers may never confiscate tips for themselves or for management.
In short: Employees own their tips. Employers and managers cannot keep or skim tips.
The Tip Credit Explained
Federal law allows employers of tipped workers to count a portion of an employee’s tips toward their minimum wage obligation. This is known as the tip credit.
- Federal minimum wage: $7.25/hour
- Minimum cash wage for tipped employees: $2.13/hour
- Tip credit: up to $5.12/hour
To legally take a tip credit, employers must:
- Inform employees of the tip credit rules, and
- Allow employees to keep all their tips unless part of a valid tip pool.
Failure to meet these requirements can invalidate the tip credit, requiring the employer to pay the full minimum wage retroactively.
Tip Pooling: Who May Participate?
Tip pools are permissible under the FLSA, but only under strict conditions.
If the employer takes a tip credit:
Only employees who “customarily and regularly” receive tips may be included, such as:
- Servers
- Bartenders
- Bussers
- Counter staff in some settings
Back-of-house employees may not participate (e.g., cooks, dishwashers, janitors).
If the employer does not take a tip credit:
The tip pool rules are broader: back-of-house workers may participate.
However—critically—managers and supervisors still may not participate, regardless of tip credit status.
Managers and Supervisors: Absolute Prohibition on Keeping Tips
The 2018 FLSA amendments made it unlawful for managers, supervisors, and/or owners to keep any portion of employee tips, even if they directly serve customers.
A practical test: If the employee has the authority to hire, fire, discipline, or meaningfully influence employment decisions, they may not receive tips from a pool.
Employer Deductions From Tips
Under the FLSA, employers may not deduct:
- Credit card processing fees from tips (unless allowed by state law and not reducing tips below minimum wage)
- Cash register shortages
- Walkouts or breakage
- Uniform costs
Any deduction that cuts into an employee’s tips risks violating wage laws.
Penalties for Violations
The DOL has authority to impose:
- Back pay
- Liquidated damages (often doubling back pay)
- Civil monetary penalties for repeated or willful violations
- Injunctions requiring future compliance
Private lawsuits are also common, and collective actions under the FLSA can expose employers to significant liability.
Conclusion
The FLSA’s message is straightforward: tips belong to workers, and employers must handle them with care. If you believe your employer has violated the FLSA, reach out to an experienced employment law attorney at Rob Wiley, P.C. in Dallas, Wiley Wheeler, P.C. in Houston or Austin Employment Lawyers, P.C. in Austin for a consultation.