- Date:
- Category: Employment Law
Minnesota allows no tip credit, treats gratuities as the sole property of the employee who receives them, and requires that tips paid by card reach the employee in full.
Those three rules are more protective than federal law on these points. What follows is what each one actually permits and prohibits.
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No Tip Credit
Minn. Stat. § 177.24, subd. 2 provides that no employer may directly or indirectly credit, apply or utilize gratuities toward payment of the minimum wage set by that section or by federal law.
In plain terms, your employer owes you the full applicable minimum wage as wages regardless of how well you did in tips. A restaurant cannot pay a reduced cash wage and treat gratuities as making up the difference, which is exactly what federal law permits in states that allow a tip credit.
The rule holds in the cities too. Minneapolis states that tips and gratuities do not affect the minimum wage owed and that no employer may credit, apply or utilize gratuities toward payment of the minimum wage. Saint Paul lists tips among the things that are not considered wages for purposes of its ordinance. Whatever minimum wage otherwise applies to the worker and location, including any higher industry-specific standard, must be paid as wages before tips. Gratuities cannot be used to satisfy any part of that wage floor.
Your Tips Are Your Property
Section 177.24, subd. 3 states the principle: any gratuity received by an employee, or deposited in or about a place of business for personal services rendered by an employee, is the sole property of the employee.
Everything else in Minnesota tip law follows from that sentence. Because the money is the employee’s property rather than the employer’s, an employer needs specific authority to touch it, and the statute grants very little.
Tip Pooling Has to Be Voluntary
This is a common source of disputes.
Section 177.24, subd. 3 provides that no employer may require an employee to contribute or share a gratuity with the employer or other employees, or to contribute any or all of a gratuity to a fund or pool operated for the benefit of the employer or employees. Minn. R. 5200.0080, subp. 4 adds that pooling or sharing of gratuities may not be a condition of employment.
Employees may share voluntarily. The statute preserves that expressly. What it requires is that the agreement to share be made by the employees without employer coercion or participation.
The employer’s permitted role is limited to three things, and the statute lists them:
- Upon the request of employees, safeguard gratuities to be shared and disburse them to employees participating in the agreement
- Report the amounts received as required for tax purposes
- Post a copy of the section for the information of employees
| Practice | Permitted? |
|---|---|
| Employer requires participation in a tip pool as a condition of the job | No |
| Employees agree among themselves to share tips, without employer involvement | Yes |
| Employer holds and distributes a pool the employees asked it to administer | Yes |
| Managers or supervisors receive a share of the pool | No, under federal law |
| A manager or supervisor keeps a tip a customer gave them for service they directly and solely provided | Yes, under federal law |
| Employer deducts card processing fees from tips | No |
| Employer keeps an obligatory service charge after clear and conspicuous notice to customers | Yes |
| Employer keeps an obligatory service charge without that notice | No |
Source: Minn. Stat. § 177.24, subds. 2, 3, 3a and 4, Minn. Stat. § 177.23, subd. 9, and Minn. R. 5200.0080, subps. 4, 4a, 4b and 6. The manager and supervisor rows rest on federal law: Fair Labor Standards Act § 3(m)(2)(B), 29 CFR 531.52(b)(2) and 29 CFR 531.54. Verified September 5, 2026.
Managers and Supervisors: A Federal Rule, Not a Minnesota One
The prohibition on managers and supervisors taking a share of pooled tips comes from federal law rather than from the Minnesota provisions above, and the two operate differently.
Under the federal Fair Labor Standards Act, an employer may not keep tips received by its employees for any purpose, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether the employer takes a tip credit. The implementing regulation at 29 CFR 531.52(b)(2) says the same, and 29 CFR 531.54 provides that an employer may not receive tips from a tip pool and may not allow managers and supervisors to receive tips from the pool.
There is an exception that is often left out. A manager or supervisor may keep tips they receive directly from customers based on the service that they directly and solely provide. A shift lead who serves their own table and is tipped by that customer may keep that tip. What they may not do is take a share of the pool the other servers contributed to.
Who counts as a manager or supervisor is defined rather than left to job titles. For this purpose the term means an employee whose duties match those of an executive employee as described in 29 CFR 541.100(a)(2) through (4) or 541.101, which turns on managing the business or a recognized department, customarily and regularly directing the work of at least two other employees, and having authority over hiring and firing or having particular weight given to those recommendations. A title reading “supervisor” does not by itself decide it.
The federal and Minnesota rules also reach different things, and the difference matters in a Minnesota restaurant. Federal law permits an employer that pays the full minimum wage and takes no tip credit to impose a tip pooling arrangement that includes cooks, dishwashers and other back-of-house employees. Minnesota is more protective on that point, because § 177.24, subd. 3 prohibits an employer from requiring an employee to contribute to a pool at all, and Minn. R. 5200.0080, subp. 4 provides that pooling may not be a condition of employment. So the mandatory back-of-house pool that federal law would allow is not available to a Minnesota employer.
The rule also draws a line between direct and indirect service employees. Rule 5200.0080, subp. 6 defines a direct service employee as one who in a given situation performs direct service for a customer, and treats that person as a tipped employee. An indirect service employee is someone who assists a direct service employee, and the rule names bus people, dishwashers, cooks and hosts as examples. Where an indirect service employee benefits from shared gratuities, that remuneration is not counted in calculating their wages.
Credit Card Tips Must Be Paid in Full
This rule changed recently and the change favors employees.
Section 177.24, subd. 3a now provides that gratuities received through a debit, charge, credit card or electronic payment are credited to the pay period in which the employee receives them, and that the full amount of the gratuity indicated in the payment must be distributed to the employee no later than the next scheduled pay period.
The word to notice is “full.” Minnesota previously had an administrative rule, 5200.0080, subp. 7, allowing an employer to pass along the card processing percentage by reducing the tip in the same ratio as the fee deducted from the total bill. That subpart was repealed in 2024. The statutory rule that replaced it contains no processing fee carve-out.
If your employer is still shaving two or three percent off card tips to cover merchant fees, that practice was built on a rule that no longer exists.
Service Charges and the Notice Requirement
An obligatory charge added to a bill can be a gratuity in law even though it is not called a tip.
Minn. Stat. § 177.23, subd. 9 defines gratuities to include an obligatory charge assessed to customers, guests or patrons which might reasonably be construed by them as payment for personal services rendered by an employee, and for which no clear and conspicuous notice is given by the employer that the charge is not the property of the employee. Rule 5200.0080, subp. 4a confirms that service charges, tips, gratuities and surcharges included in the statement of charges fall within that description.
So the notice is what determines ownership, and the rule specifies what counts. Under subp. 4b, clear and conspicuous notice means notice clearly printed, stamped or written in bold type on the menu, placard, front of the statement of charges or other printed material given to the customer. Type of at least 18 point on a placard, or 9 point or larger on other notices, is clear and conspicuous.
An employer that adds a 20 percent service charge without giving that notice has, on the face of these provisions, collected a gratuity belonging to the employees who provided the service.
Deductions From Tips Are Restricted
Section 177.24, subd. 4 provides that deductions, direct or indirect, from wages or gratuities that are not authorized by that subdivision may only be taken as authorized by Minn. Stat. §§ 177.28, subd. 3, 181.06 and 181.79.
Gratuities are named alongside wages. That closes a route an employer might otherwise take, which is to concede that tips belong to the employee and then charge things against them. The same subdivision separately caps deductions for uniforms and equipment and prohibits deductions for uniforms, required equipment, consumable supplies and work travel where the deduction would reduce wages below the minimum wage. Section 177.24, subd. 5 requires the employer, at the end of employment, to reimburse the full amount deducted for those items.
If Your Tips Are Not Reaching You
The rules above are only useful if you can tell whether they are being followed, which usually starts with your earnings statement. Minn. Stat. § 181.032 requires it to show your rate and basis of pay, gross and net pay, each deduction and, unless you are exempt from chapter 177, your hours.
Where tips are being pooled involuntarily, shared with management, reduced by processing fees or retained as service charges without notice, that is a claim rather than a grievance, and it is brought the same way as any other claim for unpaid wages. The firm’s Minnesota employment law section covers the other areas we handle, and workers in the capital city can read our page on unpaid wages in St. Paul, where the city treats withholding tips as wage theft.
Frequently Asked Questions
Can my employer pay me less than minimum wage because I get tips?
No. Minnesota permits no tip credit. Section 177.24, subd. 2 prohibits an employer from directly or indirectly crediting, applying or utilizing gratuities toward payment of the minimum wage, so you are owed the full applicable rate as wages with tips on top.
Is tip pooling legal in Minnesota?
Voluntary sharing among employees is lawful. What is prohibited is an employer requiring you to contribute to a pool or making participation a condition of employment. The agreement to share must be made by the employees without employer coercion or participation, and the employer’s role is limited to safeguarding and disbursing a pool at the employees’ request, tax reporting, and posting the statute.
Can managers take a share of the tip pool?
No, and the rule that says so is federal. The Fair Labor Standards Act prohibits an employer from allowing managers or supervisors to keep any portion of an employee’s tips, regardless of whether a tip credit is taken, and the regulations bar them from receiving tips from a tip pool. There is one exception: a manager or supervisor may keep a tip a customer gives them directly for service they directly and solely provide. Who counts as a manager or supervisor is defined by reference to the federal executive duties test rather than by job title. Minnesota law separately makes gratuities the sole property of the employee and prohibits an employer from requiring contribution to a pool at all.
Can my employer deduct the credit card fee from my tips?
Section 177.24, subd. 3a requires that the full amount of a gratuity indicated in a card or electronic payment be distributed to the employee no later than the next scheduled pay period. The former administrative rule that allowed a proportional processing fee deduction was repealed in 2024.
Is an automatic service charge on a banquet bill my tip?
It can be. An obligatory charge that a customer might reasonably construe as payment for personal services is a gratuity unless the employer gave clear and conspicuous notice that the charge is not the property of the employee. The rule sets out where that notice must appear and how large the type must be.
This article provides general information about Minnesota law and is not legal advice. Whether a particular tip practice is lawful depends on facts specific to your workplace.
