Five Legal Truths about Tipping

In today’s restaurant industry we’re seeing changes to tipping customs, which reflects shifting cultural attitudes around them. As a restaurateur, it’s helpful to understand the nuances of tipping to make informed decisions about wages. To that end, here are four truths about tipping, compiled by legal website Avvo.

1. Managers and owners have no right to tips.

The Department of Labor is firm that management has absolutely no right to take a cut of the waitstaff’s tips. So, even if your manager takes a table here and there during the dinner rush, the law firmly denies them a percentage of the tips.

Someone in management may collect tips for a valid tip pool, but that still doesn’t give them a right to take any of that tip money themselves. In a tip pool, all of the tips are put together and divvied up equally between those that received them. The Department of Labor has strict guidelines around who may or may not be included in a tip pool, and management never qualifies.

So, a restaurant that makes waitstaff relinquish a cut of their tips to “the house” at the end of the night is likely in violation of the law.

3. Not all states have tip credits.

California, Montana, Nevada, Minnesota, Oregon, Alaska, and Washington have outlawed tip credits. This means that servers are paid the state minimum wage in addition to their tips. Some restaurants, especially in these states, have adopted a “no tip” policy altogether.

The “no tip” system (or “mandatory service fee” system) keeps wages fair across the restaurant. An employer can take the money paid to them in place of traditional tips and divvy it up to include BOH, runners, and hosts. It saves the owner money and would seem to do the same for the customer. This is because in a state with no tip credits, the owner must furnish a minimum wage for all staff anyway. The menu prices already reflect the servers’ wages. To tip on top of that means that the customer is paying twice for those wages.

However, an important barrier to entry is that owners must pay higher sales taxes and workers compensation if they switch to the “no tip” or “mandatory service charge” model. This is because that money is counted as income to the restaurant. Tips, by contrast, are “the sole property of the tipped employee.”

4. Some believe tipping should be eradicated for its discriminatory ties to race and gender.

Indeed, it’s been noted that tipping’s history is rife with racism and sexism. Elizabeth Banks, a turn-of-the-century reporter, wrote that “tips and servility go together”. Banks detested the custom, calling it “un-American.” She feared that tips would cause college-educated women to take positions of inferiority to their male patrons.

Is this still true today? The U.S. Equal Employment Opportunity Commission estimates that over 60% of all tipped workers are women. This means that there are a disproportionate number of women having to rely on a third-party—customers—to ensure their wages.

Equally, 37% of sexual harassment charges are filed by women in the restaurant industry. It’s certainly feasible that customers feel themselves in a “power position” and therefore behave inappropriately. In turn, servers are subjugated to it in order to earn their living.

5. Tipping has been outlawed in American history.

Indeed, tipping has a controversial history. It was initially hated by the American public. The custom was thought to undermine capitalist values and reinforce class lines.

In a culmination of this sentiment, seven states outlawed tipping at the beginning of the 20th century. This movement may have prevailed except for one event: Prohibition.

During Prohibition, restaurateurs suffered greatly. Tips helped them offset losses from liquor sales. By 1926, all of the states had repealed anti-tipping laws. 

As a restaurant owner, be sure to fully understand the Fair Labor Standards Act as well as relevant state laws before making any decisions. If you require quick advice or an employee contract review, Avvo offers easy legal services related to business formation.

Please note: The views and opinions expressed herein are the author’s alone and do not represent Avvo. Also, the legal information herein is intended for general informational purposes only and is not the provision of legal services. Please acknowledge that such information consists of third-party data and contributions, that there are certain inherent limitations to the accuracy or currency of such information, that legal and other information may be incomplete, may contain inaccuracies, or may be based on opinion.