Can a Restaurant Owner Keep Tips Under Federal Law?

Under federal law, a restaurant owner cannot keep tips left for employees. The Fair Labor Standards Act makes tips the property of the employee who earned them and prohibits the employer, along with any manager or supervisor, from taking any portion for any purpose.¹ The rule holds whether the restaurant pays the full federal minimum wage of $7.25 an hour or uses a tip credit to pay a lower cash wage, and it holds whether the operation is a food truck or a white-tablecloth room.²

What the Owner Cannot Do With Tips

The prohibition is absolute. An owner cannot require staff to turn tips over to the house, skim from a register drawer, or fold tip revenue into the restaurant’s general operating budget.¹

Tips also cannot be used to plug the ordinary costs of running the business. Register shortages, broken dishes, and walkout tabs are operational expenses the restaurant bears. Shifting them onto an employee’s tips is illegal.²

Does the Ban Apply to Managers Too

Yes. The ban reaches anyone who qualifies as a manager or supervisor. Federal regulations define that as an employee whose primary duty is running the business or a recognized department, who regularly directs the work of at least two other full-time employees, and who has hiring or firing authority (or whose recommendations on those decisions carry particular weight).² If someone is on salary as a manager exempt from overtime, they will almost always count as a manager for tip purposes as well.³

One narrow exception exists. A manager who personally waits on a table can keep a tip a customer hands them for that direct service. Even then, the manager cannot take a share of any tip pool or dip into any other employee’s tips.²

What an Owner Can Legally Do

Require a Tip Pool

An employer can require tipped employees to share tips through a pool. Federal law does not cap the percentage an employee has to contribute, but it strictly limits who can receive from the pool.⁴

If the employer takes a tip credit, the pool is limited to employees who customarily and regularly receive tips, meaning front-of-house staff such as servers, bartenders, and bussers.⁴
If the employer pays the full minimum wage without a tip credit, the pool can include back-of-house workers like cooks and dishwashers.⁶

Owners, managers, and supervisors remain barred from receiving any share, period. Pooled tips must be distributed in full by the regular payday for that workweek.5U.S. Department of Labor. Fact Sheet 15 Tipped Employees Under the Fair Labor Standards Act

Deduct Credit Card Processing Fees

When a customer tips on a credit card, the restaurant pays a processing fee to the card company. The Department of Labor allows the employer to withhold a proportionate share of that fee from the tip. If the card company charges 3%, the employer can deduct 3% of the tip. Two limits apply. The deduction has to reflect the actual processing cost on the tip, not generate a profit for the house, and it cannot pull the employee’s total pay below the applicable minimum wage.⁷

Keep Service Charges

Not every extra amount on a check is a tip. A tip is a voluntary payment where the customer chooses the amount. A service charge, such as an automatic 18% gratuity on a large party, is a mandatory fee set by the business.⁸ Service charges legally belong to the restaurant. The owner can keep the full amount, distribute part of it, or use it for operating costs. If any of it goes to staff, it is paid as regular wages subject to standard withholding, not as tips.⁹ If you assume the auto-gratuity on your large-party checks is landing in your pocket, ask how the restaurant classifies it.

A Note on State Law

Everything above is federal. Some states go further, including refusing to allow a tip credit at all and requiring the full state minimum wage before tips.¹⁰ Where state law is stricter, the stricter rule governs.

What It Costs an Owner Who Keeps Tips

The consequences stack, and they stack per employee.

The employer owes the full amount of tips unlawfully kept plus any tip credit taken, plus an equal amount in liquidated damages. In practice, that doubles the bill.¹¹
The Department of Labor can assess civil money penalties of up to $1,409 per violation for keeping employee tips.¹²
An employee who wins an FLSA lawsuit is awarded reasonable attorney’s fees and costs, paid by the employer, on top of the judgment.¹¹

An owner skimming from a staff of twenty servers for a year can face six-figure exposure once doubled damages, per-violation fines, and fees are added together.

What to Do if Your Employer Is Taking Your Tips

Start with a paper trail. Keep your own daily record of hours worked and tips earned, and save pay stubs or screenshots from any electronic pay system. That personal log becomes central evidence if the employer’s records are incomplete.

From there, you have two routes:

File a complaint with the Department of Labor’s Wage and Hour Division. Call 1-866-487-9243 or file online. The division investigates and can order the employer to pay back stolen tips.¹³
File a private lawsuit in federal or state court to recover the tips, an equal amount in liquidated damages, and attorney’s fees. You can bring the case on behalf of similarly affected coworkers as well.¹¹

You generally have two years from each violation to file, and three years if the employer’s conduct was willful.¹⁴ Because tip theft usually continues week after week, each paycheck where tips were withheld can be its own violation with its own clock.

You Cannot Be Fired for Complaining

Federal law makes it illegal for an employer to fire you, cut your hours, move you to worse shifts, or otherwise punish you for filing a tip theft complaint or taking part in an investigation.¹⁵ If retaliation happens anyway, you can recover lost wages, reinstatement, and liquidated damages equal to your losses.¹¹

1
Office of the Law Revision Counsel. 29 U.S. Code 203 – Definitions
2
U.S. Department of Labor. Fact Sheet 15 Tipped Employees Under the Fair Labor Standards Act
3
eCFR. 29 CFR 531.52
4
eCFR. 29 CFR 531.54 – Tip Pooling
5
6
eCFR. 29 CFR 531.54 – Tip Pooling