The DOs and DON’Ts of the DOL’s New Tip Credit Rules

February 20, 2023

Employees in the service industry, such as bartenders and waitstaff, have come to rely on tips as a part of their hourly wages. In fact, most states specifically allow restaurants and bars to pay workers less than minimum wage, anticipating that they will be able to supplement their wages with tips earned – this is referred to as the “tip credit”. If employers elect to use the tip credit provision, they must comply by federal and state laws. Here are some must-know Dos and Don’ts of the Department of Labor’s new tip credit rule:


    • Identify who qualifies as a manager/supervisor under DOL:
        • Identify tipped duties and tip-supporting non-tipped duties
        • Train management on new DOL Tip Credit Rule
        • Identify who is a tipped employee
    • Pay employees minimum wage unless:
        • Taking a tip credit and
        • Employees have been notified of the tip credit
    • Notify employees of tip credit including minimum cash payment, additional amount to be paid as a result of the tip credit, all tips to be retained by employee except for tip pool, and that tip credit shall not apply to any employee who has not received the notice.
    • When taking tip credit pay overtime on full minimum wage not lesser cash minimum payment (do not include tips in excess of tip credit in regular rate calculation).
    • Take tip credit only for amount of tips each tipped employee receives prior to disbursements from a tip pool.
    • Implement detailed policy regarding any mandatory tip pool.
    • Notify tipped employees of mandatory tip pool.
    • Distribute tips out of mandatory tip pool within pay period.
    • Allow managers to keep tips received directly from customers for services for whom the manager or supervisor directly and solely provided regardless of whether there is a tip credit.
    • If not taking tip credit:
        • Maintain and preserve records on employees who receive tips and what amounts on a weekly and monthly basis


    • Assume all supervisory staff qualify as managers under DOL: managers/supervisors are those with (i) primary duty of management of enterprise or recognized department, (ii) directs the work of at least two employees, and (iii) has the right to hire/fire or whose recommendations carry great weight. Or a 20% owner who is employed in management of the company.
    • Take a tip credit for employees who only earn tips occasionally or seasonally. Tipped employees are only those who customarily and regularly directly receive $30 a month in tips.
    • Take a tip credit more than allowed by statute (minimum wage less cash wage paid.)
    • Take tip credit for any non-tipped work that is not supporting the tipped occupation.
    • Take tip credit for any non-tipped supporting work duties performed for over 20% of the work week or 30 consecutive minutes (time for which there is no tip credit taken is excluded from the calculation).
    • Leave tip sharing up to staff.
    • Distribute tip pool to any managers, supervisors, or non-tipped employees (non-tipped employees can share in tip pool only if tip credit is not taken by employer)
    • Retain any employee tips except:
        • As a credit against minimum wage obligations
        • In furtherance of a valid tip pool
        • If part of a compulsory service charge
        • In association with credit card processing fees
    • Allow managers or supervisors to keep employee tips for any reason including through tip pool (even if manager or supervisor contributes to tip pool) regardless of whether tip credit is taken.
    • Deduct from wages for breakage, walk-outs or register shortages if it results in paying less than minimum wage.

For more information or to discuss further, please contact KJK’s Labor & Employment practice group.