Quick answer
No. Under federal law, employers can never keep employees’ tips, and managers and supervisors can never share in a tip pool. The one narrow exception: a manager can keep a tip a customer gives them directly for service they personally and solely provided. An owner with 20% or more equity who is actively involved in management is treated as a manager for this purpose.
Last reviewed October 2026.
Who can keep what?
| Person | Can keep tips they earn directly and solely? | Can share in a tip pool? |
|---|---|---|
| Employer or owner | No. Cannot keep employees’ tips. | No |
| Owner with 20%+ equity, actively managing | Treated as a manager or supervisor. May keep a tip a customer gives them directly for service they personally and solely provided, where state and local law permit. | No |
| Manager or supervisor | Yes, a tip given directly for service they personally and solely provided | No |
| Tipped employee | Yes, subject to any lawful pool or tip-out | Yes, if eligible |
Why can’t owners and managers keep tips?
Section 3(m) of the Fair Labor Standards Act says tips belong to the employees who earn them. Whether or not a tip credit is taken, employers may never keep tips and may never let managers or supervisors keep them. The logic is simple: owners and managers earn a salary, while tipped employees are hourly and often paid a cash wage as low as $2.13 an hour, so tips are the income they rely on. Tips an employer withholds can be treated as wage theft. See our guide to tip pooling laws for who can take part in a pool.
Who counts as a manager or supervisor?
For tip purposes, federal law borrows the duties test from the FLSA’s executive exemption. An employee does not need to meet every element. Weigh these together:
- Manages the business: their primary duty is managing the enterprise or a recognized department of it.
- Directs others: they customarily and regularly direct the work of two or more employees.
- Has authority: they can hire or fire, or their recommendations carry particular weight.
Anyone who owns 20% or more equity and is actively engaged in management is treated as a manager or supervisor for tip purposes even if they would otherwise fail the duties test. Analyze each tipped position individually and document it.
The exception: tips earned directly and solely
The keywords are directly and solely. If a manager took a table’s entire order, ran their food and drinks and presented the check, a tip the guests leave for that manager can be kept. If a manager stepped in to help a server who was in the weeds, the tip still belongs to the server. A manager can also contribute their own directly received tips into an eligible pool where state and local law permit, but can never receive a share of the pool.
How does it happen by accident?
Sometimes managers knowingly take tips, but often the cause is complexity. Tip rules vary by federal, state and local law and change often. Restaurants move fast, and good managers pitch in on the floor, so it is natural to assume that helping earns a share. Owners and managers most commonly cross the line through tip pools, by redistributing pooled tips to managers, owners or staff who are not eligible. Cash tip-outs make it worse because there is no record of who received what.
What happens if a manager or owner keeps tips?
- Repayment: the tips are owed back to the employees.
- Damages and penalties: civil money penalties and damages can apply. Amounts depend on the current statute, the facts and state law, and change with inflation adjustments, so do not rely on a fixed figure.
- Intent does not decide it: penalties can apply whether or not the employer knew the practice was illegal.
- Culture: employees who sense tips are being kept lose trust quickly.
How do you make sure everyone plays by the rules?
Write down your tip policy, document your manager and supervisor analysis, and keep records of who was paid what. A digital system helps because cash tip-outs leave no trail. Kickfin calculates pools from POS data using the policy the employer sets, pays employees directly, and keeps a ledger you can pull by employee, shift or location if a question ever comes up. The decision about who is eligible always stays with the employer and its advisors. Book a demo to see how the ledger works.
Frequently asked questions
Can a restaurant owner keep tips?
No. Employers may never keep employees’ tips, whether or not a tip credit is taken, and may not let managers or supervisors keep them. An owner with 20% or more equity who is actively engaged in management is treated as a manager or supervisor for tip purposes.
Can a manager keep tips?
A manager can keep a tip a customer gives them directly for service they personally and solely provided. They cannot receive a share of pooled employee tips, and they cannot keep tips because they helped serve a table or pitched in during a rush.
What if a manager helped a server who was in the weeds?
The tip still belongs to the server. Helping out is not the same as personally and solely providing the service.
Who counts as a manager or supervisor for tip purposes?
Federal law weighs three factors together: whether the person’s primary duty is managing the business or a department, whether they customarily and regularly direct the work of two or more employees, and whether they can hire or fire or their recommendations carry particular weight. No single factor is automatically decisive.
What happens if a manager or owner keeps employee tips?
The employer can owe the tips back to employees and face damages and civil penalties. The amounts depend on the current statute, the facts and state law, and they change with inflation adjustments, so do not rely on a fixed figure. Liability does not depend on whether the employer knew the practice was illegal.
Do state laws allow managers to keep tips?
Federal law is the floor and states can be stricter. Some states restrict managers and owners further. California’s Labor Code section 351, for example, treats tips as the sole property of employees. Confirm the rule for each state and city where employees work.
Sources
- U.S. DOL Fact Sheet #15: Tipped Employees Under the FLSA
- 29 CFR Part 531, Subpart D: Federal tip pool regulations
Educational overview only, not legal, tax, or accounting advice. Tip and wage laws vary by state and city and change often; confirm current rules with qualified counsel and a tax advisor before acting. Kickfin does not determine any employer’s legal or tax obligations.
