Please note: We are not a legal firm and do not provide legal advice. This article is for informational purposes only. Consult with a qualified attorney before implementing any practices discussed herein.
For restaurants, bars, hotels, and service businesses in Michigan, tipping laws directly impact payroll, compliance, and staff retention. Employers who fail to follow wage and tip rules risk fines, disputes, and reputational damage.
This 2025 guide breaks down:
Under the federal Fair Labor Standards Act (FLSA), the minimum wage is $7.25/ hour as of 2025. Employers may use a tip credit by counting part of a tipped employee’s tips toward meeting the minimum wage obligation, as long as certain conditions are met. These include notifying employees, ensuring that tips plus wages equal at least the minimum wage, and limiting who can participate in tip pools.
If tips + the employer’s “direct (cash)” wage do not bring the employee up to the federal minimum in a workweek, the employer must make up the difference. Operators must always comply with whichever wage standard is more favorable to the employee: federal or state.
What Michigan operators need to know about wages & tips:
In short, as a Michigan operator, if your tipped employees don’t earn enough in tips plus cash wages to reach $12.48/h in a given workweek, you must make up the difference. You may legally apply a tip credit up to $7.74/h, so long as you comply with notification and pooling rules.
Also, Michigan’s law now requires that the tipped wage be expressed as a percentage of the standard wage (“38%”) and that the tip credit covers the balance. Overtime for tipped employees is calculated based on the full (non-tipped) minimum wage, not the sub-minimum tipped rate.
Tip pooling (or “tipping-out”) is common in restaurant settings (e.g., servers tipping to bussers, bartenders, runners). But Michigan law imposes strict guardrails:
As a reminder, if the employer does not claim a tip credit and instead pays tipped employees the full minimum wage in cash, the employer can set up broader tip pools, potentially including non-tipped employees, as long as the arrangement is fair and employees are properly notified. However, this approach brings its own risks and complexities.
Operators must document the tip pool rules clearly, with a written policy or a posted notice, and preserve records of how tips are shared. In disputes, courts and labor agencies will scrutinize whether the pool is fair, transparent, and properly limited.
Distinguishing voluntary tips from mandatory service charges (or fees) is critical; they are treated differently under the law:
Because mandatory service fees do not count as tips, they cannot legally be pooled under tip-pool rules that apply to tips. Misclassifying a required service fee as a tip and then pooling it is a common legal pitfall.
TipHaus Tip: Always make it clear whether a fee is a true service charge or just a suggested tip. Train your team to explain the difference, and include simple language in your policies so guests know exactly where their money is going. If it’s left unclear, it opens the door for disputes.
In many tip-dependent businesses, customers tip via credit card, and that raises the question: can the employer subtract the credit card processing fee from the tip?
Because this is a legal gray area in Michigan, operators should consult labor counsel before implementing credit card tip fee deductions or “tip pooling with deductions” policies.
As an operator, one of your key responsibilities is safeguarding your employees, not only because it's legally required, but because fair treatment fosters loyalty, reduces turnover, and avoids costly disputes. Below are critical protections and best practices.
As Michigan’s wage and tipping laws continue to evolve, having the right tools in place makes all the difference. TipHaus is here to help you stay compliant, save time, and build trust with your team.
For Michigan operators, staying compliant with complex tip laws doesn’t have to be a headache. TipHaus automatically calculates tips according to state and federal rules, ensuring staff are paid fairly and legally every shift. The platform also creates clear, auditable records that protect operators in the event of a wage dispute or Department of Labor audit. With everything streamlined into one system, operators save hours of manual work while giving employees real-time visibility into their earnings.
You can start your free trial today or see how much you can save with our ROI calculator.
