Tips Must Be Paid to Employees
A tip is a voluntary sum of money that a customer freely gives to an employee for services.
Under state law:
- Employers must pay all tips to employees.
- The employer may not take tips for company use, or to pay employee wages.
- “Tip crediting” isn’t allowed. Tips are in addition to, and not a part of, an employee’s state hourly minimum wage.
Employers may establish tip pools or require employees to “tip out” other employees. We recommend employers create clearly written policies for tip pooling arrangements.
Tip pools or tip outs:
- Cannot include salaried managers and business owners.
- Can include employees who are not directly serving a customer, such as kitchen staff and hourly lead workers.
- Must be in addition to, and not a part of, an employee’s state hourly minimum wage.
Employees cannot be required to contribute more than they received in tips to a mandatory tip pool.
Employees may voluntarily have a tip-sharing agreement. But, an employer is not required to assist in administering voluntary tip-sharing agreements.
We will investigate the complaint to determine if you are owed tips.
Note: Employers, supervisors, or managers may accept tips only for services they directly provide.
A service charge is a mandatory fee an employer may charge for services that an employee provides.
To customers, service charges may appear to replace a tip. Because of this, state law requires clear disclosure of who receives the service charge. Service charges also include mandatory gratuities and delivery charges.
Under state law:
- If a business imposes a service charge, it must clearly disclose on the receipt and menu how much, if any, an employee who provides services will receive from the service charge.
- If nothing is disclosed, or the disclosure is unclear, then the entire service charge must be paid to the employee who provides services to the customer.
- Here are examples of disclosure statements for employers.
- The service charge paid to an employee is in addition to, and not a part of, an employee’s state hourly minimum wage.
These service charge requirements are specific to businesses that provide food, beverage, entertainment, and porterage services such as:
- Catering houses
- Convention centers
- Hotels and motels or other overnight services
A surcharge that is not related to services provided by an employee such as a fuel surcharge, late fee, cancellation fee, or parking fee, is not a service charge.
If you feel you are not being paid service charges as required by law, you can file a complaint with the Department of Labor & Industries using the Workplace Rights Complaint Form. The department will investigate the complaint to determine if you are owed service charges.
Paying tips and service charges
- Recordkeeping: Employers must record the amount paid each pay period to their employee, including tips and the employee’s portion of service charges.
- Payday: Employers can allow employees to take their tips and service charges when they are earned, or they can provide them on the paycheck covering the same pay period.
- Deductions: The employer cannot deduct cash register shortages or other business expenses from tips or service charges paid to the employee.
- 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.
Taxes on tips and service charges
- Employers are required to withhold taxes from tips and service charges. Employers should only withhold taxes from the amount employees receive from a tip pool – not the amount they put into the tip pool.
- If your employer pays out tips or service charges on a nightly basis, they sometimes add them to your paycheck in order to withhold taxes. This amount is shown as an addition and a deduction since the money was already paid.
- The Internal Revenue Service provides guidance for employees and employers on required recordkeeping related to tips and service charges for federal tax purposes.