In almost every case, no. Under federal law, your tips belong to you, not your employer. The Fair Labor Standards Act (FLSA) flatly prohibits an employer, manager, or supervisor from keeping any portion of an employee's tips for any reason, even if the employer pays the full minimum wage and takes no tip credit. This is true for cash tips and for tips left on a credit card, and it means an employer generally cannot withhold tips as a punishment, a penalty for a register shortage, or a way to cover a customer's walkout.
That said, tip law has real nuance. Employers can do some things with tips, such as running a valid tip pool among workers or deducting the actual credit card processing fee from a card tip. The line between what is allowed and what is wage theft matters a great deal, so it is worth understanding the rules before you assume you have been cheated, or before you accept being told that withholding your tips is legal.
The federal baseline: tips are the property of the employee
The governing law is the Fair Labor Standards Act, enforced by the U.S. Department of Labor's Wage and Hour Division. A 2018 amendment to the FLSA made the rule explicit: an employer may not keep tips received by its employees for any purpose, and that prohibition specifically includes the employer's managers and supervisors. A boss cannot pocket your tips, cannot quietly skim from the tip jar, and cannot route a share of tipped income to people who own or run the business.
This protection applies regardless of how the employer pays its base wage. Some employers pay the full minimum wage and still receive tips on top; others use a "tip credit" (explained below). Either way, the tips themselves are yours. The only people who may lawfully share in tips are eligible employees, not the company and not management.
Credit card tips count too
A common myth is that tips left on a credit card are somehow the employer's money because they pass through the company's bank account first. They are not. A credit card tip is the customer's gift to the worker, just like cash. The employer must pass it through to you.
There is one narrow exception the FLSA allows: an employer may reduce a credit card tip by the proportionate share of the credit card company's processing fee. For example, if the card processor charges the business a small percentage on each transaction, the employer may pass that same percentage of the tip along, so you receive the tip minus that fee. What an employer may not do is keep more than the actual processing cost, delay paying card tips beyond the regular payday, or use "card fees" as a cover story to shave off extra money. Some states prohibit even the processing-fee deduction and require the full tip to be paid, so this varies by state.
What about tip pooling and tip sharing?
Tip pooling is legal under federal law when it is set up correctly. In a tip pool, tipped workers combine tips and redistribute them, often to spread gratuities among everyone who contributed to the customer's experience. The key rules:
- Managers and supervisors can never share in a tip pool. They may keep only tips they personally and directly earned from a customer they themselves served, and even that is limited.
- The employer cannot take a cut of the pool. The money has to flow to employees.
- Who can be included depends on the tip credit. If the employer pays the full minimum wage and takes no tip credit, the pool can include traditionally non-tipped "back of house" staff such as cooks and dishwashers. If the employer takes a tip credit, the pool is generally limited to employees who customarily and regularly receive tips, such as servers and bartenders.
So a mandatory tip pool is not automatically illegal. What makes it illegal is when a manager, owner, or the business itself dips into it, or when the employer forces non-tipped workers into a pool while still taking a tip credit.
The tip credit, explained
Under the FLSA, an employer is allowed to count a limited amount of an employee's tips toward its minimum wage obligation. This is the "tip credit." In plain terms, the employer can pay a lower cash wage as long as the cash wage plus tips adds up to at least the full minimum wage for every hour worked. If tips fall short in a given workweek, the employer must make up the difference so you still earn at least full minimum wage.
To use the tip credit, an employer has to meet conditions: it must inform you in advance that it is taking the credit, it must let you keep all your tips (except for a valid tip pool), and the math must actually work out to minimum wage. If the employer fails any of these conditions, it loses the right to the tip credit and may owe you the full minimum wage plus all your tips back.
State law often goes further. Several states do not allow a tip credit at all and require employers to pay the full state minimum wage in cash before tips. Other states set a higher minimum cash wage for tipped workers than the federal floor. Because these rules and dollar amounts vary by state, check your own state labor department for the figures that apply to you rather than relying on the federal minimum.
Can an employer withhold tips as punishment or to cover losses?
Generally, no. Because tips are your property, an employer usually cannot seize them to discipline you, to punish a mistake, or to cover business losses such as a cash drawer shortage, a broken dish, a customer who walked out without paying, or a uniform charge. Deductions that drag your effective pay below the minimum wage, or that dip into tips the law says are yours, are typically unlawful under the FLSA.