Please note: We are not a legal firm and do not provide legal advice. This article is for informational purposes only. Please consult with a qualified attorney before implementing any practices discussed here.
Restaurant owners across Washington State employ around a quarter of a million people, which represents the majority of the state's hospitality industry. Understanding the rights of these workers is essential for businesses that want to comply with the law and attract top talent. That's particularly true when it comes to tipping in Washington and how it impacts owners and employees.
Can owners take tips? How do tip pooling laws work? Answering these questions and more helps Washington restaurateurs run their businesses more fairly and efficiently.
A tip credit is a mechanism under federal law that allows employers to count an employee’s tips toward meeting the minimum wage, meaning employers can pay a reduced cash wage (as low as $2.13 per hour) if tips make up the difference to at least the federal minimum wage of $7.25 per hour.
Washington state does not allow tip credits. Under Washington law, tips, gratuities, and service charges paid to employees must be in addition to, and may not be counted toward, an employee’s minimum wage. Employers cannot use tips to satisfy state minimum wage obligations.
Effective Jan. 1, 2026, the Washington statewide minimum wage is $17.13 per hour, which employers must pay to most employees, including tipped workers, in addition to any tips they receive. Local governments like Seattle set higher minimum wages. As of Jan. 1, 2026, Seattle’s minimum wage is $21.30 per hour for all employers, and tips may not be used to satisfy this requirement.
In summary, Washington restaurant owners cannot use tip credits and must pay employees at least the applicable minimum wage in cash (state or local), with tips on top.
Previously, Seattle businesses with 500 or fewer employees could pay a lower base wage if tips made up the difference. That era has ended. Effective January 1, 2026, there is no longer a tiered system.
Washington remains one of the strictest states regarding the disclosure of service charges. If you apply a "Large Party Fee" or "Service Charge," you must disclose on the menu and receipt what percentage goes to the house vs. the employee.
Pooling all the tips received and then sharing them out among tipped employees is a common practice in many states. Tip pooling is also sometimes called tipping out. There are a few regulations around tip pooling in Washington:
Unlike most states, tip pools in Washington restaurants can include back-of-house staff such as kitchen workers.
Employees can also take part in voluntary tip sharing. Tip sharing in Washington doesn't require any managerial involvement, but owners may volunteer to administer schemes to keep transactions fair and improve employee relations.
Tipping software is a way to take the complexity out of tip pooling, tip sharing, or any other aspect of managing tipped employees in Washington. One of the biggest advantages is that restaurant owners can arrange digital payouts that reach employees' bank accounts automatically.
Washington State's tipping laws for employees can create management complexities. Here’s how two Washington operators leveraged TipHaus to streamline their tip distribution and boost their business.
Rey Arias, owner of the El Toro restaurant chain, drastically cut down the time he spent on payroll and tip management. Before TipHaus, this process took up to four hours per pay period. After integrating TipHaus, it now takes him 15 minutes or less. His employees also love the Earned Tip Access feature, which allows them to get their tips the very next day.
Watch the full clip with Rey Arias and the Washington Hospitality Association to learn more.
Ivar's seafood chain wanted to introduce tipping at their 22 quick-service locations but worried about the logistical challenge. With TipHaus, they not only implemented a new system seamlessly but also saw impressive results, including:
These improvements led to a significant increase in employee satisfaction and a jump in guest satisfaction scores from 4.26 to 4.65.
Read the full case study to see how TipHaus transformed Ivar's operations.
It's common to confuse service charges with gratuities or tips. A tip is always given freely by a customer in recognition of great service. The diner chooses the amount and who it goes to. So, what is a service charge?
Service charges are added to a check by the restaurant manager or owner and represent an additional charge on top of the cost of the meal or drinks. These mandatory service charges are usually added for large groups, events, or special catering requirements. They are not a tip, and usually, employees have no right to them.
Washington law views a service charge as a mandatory fee that must be clearly disclosed, and that disclosure determines whether a portion is paid to employees. Tips and service charges in Washington must be paid in full to employees by their regular payday for the period they were earned. Employers can’t keep any portion or use them to meet minimum wage requirements; the full amount must go to employees on payday. TipHaus integrates with all major POS systems, making service charge management and reporting seamless.
However, diners can easily confuse this service charge with a tip, believing that the money will go to the employee rather than the restaurant. In Washington State, the law requires that to mitigate this problem, receipts must clearly show who gets the service charge. If the disclosure is unclear or missing, the employee then has the right to claim that entire service charge.
To avoid conflict over who has the right to service charges, restaurateurs should ensure bills and receipts are clear and accurate.
TipHaus Tip: Leverage your mandatory service charge to build a commission-based compensation model for your team. By allocating a portion of the service charge to employees based on their individual sales or contributions, you can create a structured, performance-driven reward system. This approach ensures employees are incentivized to enhance guest experiences while keeping billing clear and transparent for customers. It’s a win-win that drives both team motivation and customer satisfaction.
The IRS has officially updated Form W-2, which affects every employer with tipped employees nationwide. These updates are a direct result of the One Big Beautiful Bill Act (OBBBA), which introduces new tax incentives for service industry workers but requires more granular reporting from hospitality businesses.
To ensure your employees can claim their new federal tax deductions, including the first $25,000 of qualified tips, your payroll reporting must now include specific new codes. If these codes are missing, your employees will likely be unable to claim the federal tax deduction on their first $25,000 of tips.
Box 12, Code TP: Total amount of cash tips reported to the employer. “Cash tips” includes tips received in cash, charged, or under a tip-sharing arrangement.
Box 12, Code TT: The total amount of qualified overtime compensation paid to the employee.
Box 12, Code TA: Employer contributions made to an employee's section 128 "Trump Account."
Box 14b: Treasury Tipped Occupation Code, provides a three-digit code and descriptions for the occupations listed within the proposed regulations. The proposed regulations group the occupations into eight categories:
Many card payment systems and providers charge processing fees. The restaurant normally pays these fees rather than passing them onto the diner. In some states, it's possible to take the fee out of the employee's tips, which some owners might see as protecting the restaurant's bottom line.
In Washington, that's not legal. Employees are entitled to all their earned tips and don't have to pay any portion of the card processing fees. Employers can deduct only a portion of processing fees from tips or service charges paid with a credit or debit card. For example, if a $10 tip is processed by a company that charges a 1% transaction fee, the employer could deduct 10 cents to cover that portion of the fee
Dealing with misconceptions about tipping in Washington head-on means you can cut through the complexities and ensure you're getting it right for your business and your team. Regardless of what may happen in other states, there is no option for tip credit in Washington State, and tips can't be used to cover any aspect of operational costs, including payment processing fees.
Tip pooling and tip sharing are both perfectly legal, and investing in the right software to manage these can protect your tipped workers' rights while also making life easier for both you and them.
You can find out more about tipping in Washington at the State Labor & Industries site or the U.S. Department of Labor (DoL) site.
For more information on how the right tipping software can help you stay compliant and improve staff relations, start your free trial with TipHaus today.
