Tipping Laws & Compliance Guide by State

Tipping Laws and Compliance Guide by State

Tipping regulations vary widely across states and provinces, creating complex compliance challenges for hospitality operators, restaurant groups, and service businesses.

This comprehensive guide by TipHaus breaks down the key tipping laws you need to know, including tip credits, pooling rules, service charge treatment, and employer restrictions, to help you stay compliant and protect both your team and your business.

Explore State and Provincial Tip Law Breakdowns

Every region has its own unique rules governing tips, service charges, and wage structures. Use this guide to explore detailed breakdowns for every major U.S. state and Canadian province, and understand exactly how tipping laws apply to your operation. Each section includes local regulations, compliance tips, and best practices to help you manage tip distribution accurately and confidently.

Key Legal Tip Definitions & Restrictions

Before diving into state-specific details, it is crucial to understand three areas where laws most frequently intersect with your operations: The Minimum Wage Rule, Restrictions on Employer Control, and the Treatment of Service Charges.

The Tipped Minimum Wage Rule & The Tip Credit

Federal law (under the FLSA) and many state laws allow employers to pay a Tipped Wage (or direct cash wage) that is less than the standard minimum wage. This is possible through the concept of the Tip Credit.

Tip Credit: The amount of the employee's tips that an employer is permitted to count toward meeting the required minimum wage. For the employer to take a tip credit, the employee's direct wage plus their tips must equal or exceed the applicable federal, state, or local minimum wage.
Restriction: If an employee’s combined cash wage and tips do not meet the full minimum wage, the employer must compensate the difference (known as the "make whole" requirement).
The 80/20 Rule: Under federal guidelines, an employer can only take a tip credit for an employee who performs no more than 20% of their work time on non-tipped duties (e.g., side work like rolling silverware). If the non-tipped work exceeds 20%, the employer must pay the full minimum wage for that excess time. (Note: Many states (like California and Washington) prohibit the Tip Credit entirely, requiring employers to pay all employees the full state minimum wage regardless of tips received.)

Restrictions on Employer Control of Tips

A tip is the property of the employee, not the employer. Laws are strict about who can participate in tip distribution and how tips must be handled:

Who Cannot Keep Tips: Managers, supervisors, and owners are generally prohibited from participating in a tip pool or keeping any portion of the tips, even if they sometimes perform tipped duties.
Mandatory Tip Pools: Federal law now permits mandatory tip pools that include both traditionally tipped employees (servers, bartenders) and non-tipped, back-of-house employees (cooks, dishwashers), provided the employer pays all employees the full minimum wage (takes no tip credit). This rule is subject to specific state laws, which may impose further restrictions.

Service Charges vs. Tips

The distinction between a Service Charge (or Mandatory Gratuity) and a voluntary tip is crucial for payroll and tax compliance.

Service Charges (Mandatory): Fees automatically added to a bill (e.g., "18% Gratuity for parties of 6 or more"). Because this fee is mandatory, it is legally treated as revenue for the business and must be paid out to employees as regular wages, subject to payroll taxes.
Voluntary Tips: Tips voluntarily given by the customer. These are the property of the employee and are generally subject to more flexible distribution rules, though employees must report them for tax purposes.

Tip Law Library

Tip laws vary widely by state, province, and country. Knowing the rules is critical for compliance and protecting both employers and employees. Below are resources that break down tipping regulations in specific regions:

California Tipping Laws – One of the strictest states: no tip credits allowed, strong employee protections.
Colorado Tipping Laws – Tip pooling requirements, tip credits, and disclosure obligations.
Florida Tipping Laws – Tip credits, pooling regulations, and state minimum wage.
Illinois Tipping Laws – Allows tip credits with restrictions; Chicago has separate ordinances.
Michigan Tipping Laws – Minimum wage rules, employer tip credits, and employee rights.
Mississippi Tipping Laws – Tip credits align with federal FLSA; limited state-specific regulations.
New York Tipping Laws – Varies by industry; hospitality wage orders set unique rules.
Pennsylvania Tipping Laws – Defines tipped employees, tip pooling limits, and payroll reporting rules.
Texas Tipping Laws – Employer tip credits, distribution requirements, and recent updates.
Virginia Tipping Laws – Employer obligations, service charge handling, and pooled tip rules.
Washington Tipping Laws – No tip credit permitted; all workers must be paid full state minimum wage.
Canada Tipping Laws – Regulations differ by province (Ontario, BC, Alberta, Quebec, etc.); some prohibit employer control of tips.