What is the Tip Credit? Your Guide to Restaurant Employee Minimum Wage

Tipping is as American as apple pie — so much so that it has become heavily regulated.

Here’s one tipping regulation that most restaurant owners can cheer for: the tip credit. Find out about the federal laws that allow employers to subsidize labor costs through tipped earnings. (Obligatory disclaimer: this is not intended to be legal or financial advice — always consult with your legal counsel or tax professional if you have questions!)

What is the tip credit?

There’s a federal minimum wage of $7.25 an hour, but many restaurants only pay their servers $2.13. How?

Since servers and bartenders earn the majority of their living from tips, the U.S. Department of Labor created the “tip credit,” which allows employers to count tipped earnings toward their minimum wage requirements.

Under the Fair Labor Standards Act (FLSA), the federal minimum wage is set at $7.25 per hour, but employers can take a credit of up to $5.12 per hour. (Importantly, this number varies by state — more on that later).

If you take the tip credit, you’ll ensure that servers earn at least $7.25 an hour in wages and tips (hopefully much more!), and take the tip credit when it’s time to run payroll.

“Taking” the tip credit: Is it fair to employees?

As most restaurant pros know all too well, this industry is known for its tight margins. That’s why a tip-friendly culture can be beneficial to both hospitality employers and employees. Tipping frequently enables hardworking, well-deserving employees to earn far more than minimum wage requirements — and far more than what revenue constraints allow operators to pay their people. (In fact, many full-service restaurant servers earn $20 or more per hour.)

In states where the tip credit is allowed, and in restaurants where tipping volumes are sufficient, the tip credit allows restaurant owners to reduce some of their labor costs, while ensuring their staff still make at least a living wage.

Which states allow you to take the tip credit?

Based on your location, taking the tip credit may not be an option for you. Make sure you know the legality in your state and how it will affect your recruiting efforts.

States that allow the tip credit

If you live in any of the following states, you’re in luck! As of publication, these are the states that allow some form of the tip credit.

Alabama
Arizona
Arkansas
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
Missouri
Nebraska
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
West Virginia
Wisconsin
Wyoming

While all of these states allow a tip credit, check your state laws to see how much you can take per hour. In states with higher minimum wage requirements, you may see higher tip credit amounts — and other states that lower the maximum tip credit amount.

States that ban the tip credit

At the time of publication, these states do not allow employers to take the tip credit for their FOH staff, meaning all employees must be paid at least the state minimum wage.

Alaska
California
Minnesota
Montana
Nevada
Oregan
Washington

Which employees does the tip credit apply to?

Big picture: In states where you can take the tip credit, it applies only to tipped employees. That means your untipped employees — i.e., your back-of-house staff — are not eligible for a tip credit.

But of course, we’re talking about the law here, so exceptions and caveats abound! Even if it’s allowed in your state, there are still some boxes you have to check before taking the tip credit on all of your tipped employees.

To determine which employees qualify for the tip credit, here are a few questions you need to ask.

Is the tip credit allowed in my state? Again, a handful of states do not allow employers to take the federal tip credit, period.
How much do my employees earn in tips? You can only take the tip credit for tipped employees who regularly earn at least $30 a month in tips.
How much time are my tipped employees spending on non-tip-producing duties?

This one is a little tricky. Basically, the tip credit can only be applied to the hours your tipped employees spend doing work that produces tips OR that directly supports tip-producing work, a.k.a. side work. (Per the DOL, supporting tasks include “dining room prep work, such as refilling salt and pepper shakers and ketchup bottles, rolling silverware, folding napkins, and setting tables”).

However: Employers lose the tip credit for the time their tipped employees spend doing side work if that side work exceeds 20% of their workweek. (This is known as the 80/20 rule.)

Additionally, employers lose the tip credit for the time their employees spend doing side work if they’re doing side work for more than 30 consecutive minutes. In other words, even if an employee spends less than 20% of their total workweek doing side work, the tip credit doesn’t apply to any periods of time where the employee spent 30 consecutive minutes or more on side work.

Suffice it to say, this can get really complicated, really fast. Understanding the rules themselves is only half the battle; being able to track and apply them can be a challenge, too.

If you’re confused (or even if you think you’ve got it down pat) — it’s a good idea to consult with legal counsel to ensure you’re operating above board.

Can I take the tip credit if I implement a tip pool?

Tip pooling, like the tip credit, is pretty heavily regulated at both the federal and state levels. And just like taking the tip credit, it can be easy to be unintentionally out of compliance when it comes to tip pooling.

So what happens if you run a tip pool and you want to take the tip credit (or vice versa)?

There are two key things to note.

Implementing a tip pool doesn’t preclude you from taking the tip credit.
However, if you want to take the tip credit, your tip pool cannot include back-of-house (i.e. non-tipped) employees.

In other words: if you’re taking the tip credit, only tipped employees can participate in tip pooing or tip sharing. If BOH employees get tipped out — which is legal in many places — then you can’t take the tip credit for any of your employees, including your FOH folks.

Do I have to notify my employees about the tip credit?

You are required to give your employees notice at the time they’re hired that you’re taking the tip credit.

What is the FICA tip credit?

This is another huge opportunity for employers to increase profit margins without cutting costs on food or labor. Typically, employers are required to pay a share of their employees’ Social Security and Medicare taxes (also known as FICA) based on their income. The program was designed to incentivize employers to better monitor staff tip reporting.

Since many servers and bartenders increase their wages to well over minimum wage in tips, the FICA tip credit allows restaurant owners to decrease their tax liability. Rather than determining their FICA tax liability by total income (including tips), this tax credit allows employers to only pay FICA taxes on employee earnings that are above minimum wage.

Simplify tipping for your team

If you have tipped employees, you have to deal with a lot of cash. It’s taking up managers’ time and creating a reporting nightmare. Move into the future with Kickfin — the easiest way to pay out tips. Kickfin’s capabilities digitize tip payouts, simplify tip pool calculations, and makes reporting a breeze.

Learn more about Kickfin today.

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Product and Company News

Kickfin Recognized on the 2025 Inc. Regionals List

Kickfin has earned a top spot on the 2025 Inc. Regionals list in the Southwest region! This recognition places us among the fastest-growing privately held companies in America—and we couldn’t be prouder of what this means for our team, our customers, and the restaurant industry at large.

A Milestone Achievement

As the #1 tip distribution platform, Kickfin is trusted by thousands of restaurant teams to automate tip pooling and payouts. Since 2017, our technology has given managers hours back in their week while improving accuracy, visibility, and reporting for operators.

Only 951 companies made the cut across all regions, and in the Southwest alone, the businesses on this list contributed 13,809 jobs to the U.S. economy while achieving a median growth rate of approximately 106 percent from 2021 to 2023.

Powering the Future of Tip Management

In the past year, Kickfin has taken automated tip management to a whole new level. In addition to exciting new features that make our platform more robust than ever, we continue to add to the list of our direct integrations with the leading POS brands—which currently includes Toast, SkyTab, Square, Heartland, RPOWER, PAR POS, Oracle MICROS, NCR Aloha, and more.

→ See how the Kickfin-Toast integration “changed everything” for HOBNOB restaurants

Kickfin’s POS integrations give our customers the ability to auto-calculate even the most complex tip pools in just a few clicks, which eliminates unwieldy tip spreadsheets, saves managers even more time, and gives operators unprecedented visibility into payout calculations and history.

A Heartfelt Thank You

This achievement wouldn’t have been possible without the trust of our customers and the dedication of our team.

As Justin Roberts, co-CEO of Kickfin, puts it: “We’re incredibly grateful to our customers who have made this growth possible by trusting Kickfin with their tip management needs. This recognition is a testament to the value that automated tip management brings to restaurant teams—helping them save time, reduce risk, and take care of their people.”

We’re honored to be included in the 2025 Inc. Regionals list, and we’re excited to see what the rest of 2025 has in store!

Product and Company News, Technology and Software

Kickfin Integrates with RPOWER POS to Automate Tip Distribution for Restaurants, Bars and Nightlife

You heard that right — Kickfin has added yet another partner to our ever-growing list of POS integrations!

RPOWER POS has joined the list of leading POS systems that now integrate with Kickfin so users can fully automate tip calculations and payouts.

RPOWER is a trusted name in the restaurant industry known for its handheld devices, online ordering capabilities, and robust reporting. RPOWER’s dedication to staying on the cutting edge of restaurant tech makes the integration with Kickfin a perfect match!

With the RPOWER-Kickfin integration, restaurant operators can:

Easily build out highly complex tip policies
Calculate tip outs based on roles, shifts and hours worked
Distribute tips directly to employee bank accounts
Establish an electronic “paper trail” for every tip out

( …and more. Dive into the latest Kickfin updates for the full scoop.)

Like all of our integration customers, when RPOWER users activate the Kickfin integration, they’ll have access to our robust Customer Success team (at no extra cost!). We’re here 24/7 to review and build out your tip policy within the platform, so you’ll be up and running in a flash.

Collaboration with Riot Hospitality Group

This integration was especially exciting because we worked hand-in-hand with one of our longstanding customers, Riot Hospitality Group, to ensure the integration checked every box — and that it could handle their complex tip pooling policies.

“Kickfin has been an outstanding partner to Riot Hospitality Group for years,” said J Goldin, the systems director for RHG.

“They had already helped us go fully cashless, which eliminated a lot of risk for our teams. When we decided to completely automate tip payouts, they were a natural choice to help with that as well. We worked hand in hand with Kickfin and RPOWER to ensure the system could handle the intense complexity of our rules, while still being incredibly easy to use for our operators.”

“Kickfin is easy to implement and easy to use. If you’re thinking about trying it, you’ll be glad you did.”

As our co-CEO Justin Roberts puts it, this integration is a “no brainer for RPOWER users who understand how valuable their managers’ time is.”

RPOWER users, we’re ready for you! Schedule a demo to learn how you can activate your integration.

(Not an RPOWER user but want to take advantage of these time-saving features? See if Kickfin is integrated with your POS!)

Product and Company News

Kickfin Product Updates: New Year, New Features!

We kicked off 2025 with some major (!) updates to our Tip Calculator features.

It was a big release, and we’ll break it all down for you here — but the big headlines are:

More integrations
More speed
More flexibility

If you’re not already using Kickfin — or if you haven’t integrated Kickfin with your POS to automate tip calcs just yet — this is for you! Read on to see how you can use Kickfin’s newest tip calc features to un-clunk your tip pooling process.

More integrations, coming right up

We’re continuing to roll out integrations with the leading POS systems, giving restaurant teams the power to auto-calculate tip pools and shares in a matter of clicks.

(Side note: Kickfin only builds direct POS integrations — not using a third-party solution! — which streamlines your tech stack and keeps your costs lower.)

We were thrilled to add RPOWER to our growing list of integrations, which already includes Toast, Square, SkyTab, SpotOn, PAR and more.

If you’re an RPOWER user and you’re not yet a Kickfin customer, request a demo and we’ll show you the integration in action!

Handle autograts with ease

For servers and bartenders handling large parties, autograts can be great — but for managers, they can turn into a logistical nightmare. Now, Kickfin can help with that…

With this latest release, you can break tips and autograts into separate categories with their own set of rules for distribution. You have the flexibility to manage autograt tip splits completely separate from regular tip outs, so you can fairly reward a hardworking server-bartender-busser trio for a job well done on a 30-top.

Tips & Autograts Broken Out on Tip Data Page

Tips & Autograts Broken Out on Review Screen

With this new set up, you’ll also get more transparency in reporting. You’ll be able to see the breakdown of tips and autograts collected by each user in your reporting dashboards (more on that later!).

Include cash tips in your distributions

You heard that right — we can now distribute shares of cash tips digitally, directly to your employees’ bank accounts. Instead of doing the math on cash tips by hand, you can easily add cash to your tip pool, and we’ll calculate the share among employees for you.

Important note: cash distributions aren’t available for all of our integration partners. Contact us for more info.

Advanced Tip Rules (for even the unruliest policies)

Think your tip policy is extra tricky? Don’t worry — we’ve seen ‘em all. And there aren’t many Kickfin can’t handle, thanks to our Advanced Tip Rules feature.

If you have Advanced Tip Rules enabled, we’ve added a few new capabilities so you can further customize your tip share while we take care of the complicated math behind the scenes. Here are just a few examples of the new features we’re rolling out.

Not using Advanced Tip Rules? Reach out to us if you’d like to enable these features.

Per Segment Tip Sharing

We’ve been calculating tip shares on a check-by-check basis. For example, if you have servers sharing a percentage of tips with bussers, we would only calculate and deduct that percentage if a busser was working at the time that a check was processed. We call this Per Check Tip Sharing.

Now, we’re introducing Per Segment Tip Sharing, which gives you the option to deduct a tip share from every check processed during a shift. Let’s go back to our example — servers sharing a percent of tips with bussers. With Per Segment Tip Sharing, we would deduct a percentage of the server’s tip for every check processed, even if the busser gets cut two hours before the server.

Split Evenly

Would you prefer that all of your support staff take home an even share of their tip pool? We can now make that happen.

Previously, our tip shares entered a pool and were divided among beneficiaries based on how many minutes they worked during a shift, which we call splitting by Time Worked. With our new product update, we’re introducing the Split Evenly option, which enables you to send an equal part of a tip share to every beneficiary that worked within a segment.

More accuracy

In the past, cash autograt payments were lumped in with credit card autograts and credit card tips, resulting in credit card fee deductions on cash transactions. But that is no more!

Now we’re able to deduct credit card fees only where they apply, so you’ll no longer see credit card fee deductions attached to cash autograt transactions.

Plus, we’ve gotten even better at math. With our new update, we can prevent rounding errors, so our tip disbursal should match the tips collected in your POS to the penny.

Revamped and expanded reporting

We added new reporting views to give you more insight into each pay period, individual pay sets, and tip calculations. Here’s a quick look at your new pay period report with expanded filters:

Main Pay Period Report - Filter Bar Expanded

You’ll notice that there are now separate columns for tips and autograts, but you can still view the gross amount earned (tips + autograts = gross).

And it doesn’t stop at the main reporting page. You’ll see this more detailed reporting when you look at individual employee pay period reports, review a specific pay set, or export the information from any of your reporting dashboards.

We know this is a lot of new information to take in — but we’ve got you covered with our full Product Release Recap. Simply log in to Kickfin, click on your name in the upper left corner and select “Support” to access that portal.

Not using Kickfin? Dying to get rid of your old-fashioned gratuity management system? Drooling over these new features? We’d love to have you. Reach out to us today to see how our platform could save you time and money.

Hiring, Training and Retention, Restaurant Management

A Server’s Guide to Managing Large Parties & Securing Better Tips

Do you start getting heart palpitations when you see a large party reservation in your section? This one’s for you.

Maybe your restaurant is a local go-to for corporate dinners, milestone celebrations, and birthday parties…or maybe you regularly get blindsided with 20-top walk-ins when you least expect it.

As every hospitality pro knows, no matter how prepared you are, managing large parties can be tricky. But if you do it right, it can be a fast track to large tips.

So the next time a 20-top bachelorette party drops in and “forgot to make a reservation:” no need to hyperventilate! We’ve got the tips and tricks that can keep you sane throughout a large party — and hopefully help you reel in a well-deserved tip.

4 Tips for Staying Organized

When your 25+ top walks in, getting overwhelmed can lead you to drop the ball on service and hospitality because, hey — you’re just trying to get right right food, to the right person, as fast as possible. But your guests can pick up on when you’re frazzled or frustrated, which can impact their experience (as well as your tip).

Here are a few ways to stay organized and calm throughout service.

1. Get (a little more) familiar with your POS

Every POS system is different, but most have come quite a long way in terms of features and flexibility. There are likely bells and whistles on your POS that you might not use every day, but that can make managing large parties much more seamless.

So use all that tech to your advantage. Set aside time for some extra training or research to understand what your POS is capable of, so that it’s all muscle memory the next time you have a large group sitting in your section.

For example, here are just a few things you should know about your POS as it relates specifically to large parties:

Is there a max number of ways you can split a bill evenly?
How many checks can you create on each table?
How many ways can you split a single item?
Do you need manager permission to add auto-gratuity?

2. Assign seat numbers

The only way to stay sane when dealing with a large party is to assign seat numbers — and stick to them.

You should assign seat numbers starting with your first guest on the left and continue around the table moving counterclockwise. As you put in the first round of drink orders, your POS should allow you to assign items to a seat number. Even if guests move to different seats throughout the meal, stick to their original seat number.

Sure, it’s tedious — but these numbers will be your saving grace when someone asks you for another drink or when they want to split the check by family. No matter how in the weeds you are, take the time to add seat numbers. You’ll thank us later.

When they ask for 15 separate bills, you can just drop each seat number into a new check and print. No need to go back and ask, “who had the fish?”

3. Don’t trust your own memory

As a server, it’s normally a crowd-pleasing flex to take everyone’s order from memory. But when you’ve got 17 people depending on you to make grandma’s 97th birthday lunch a success: Pull out your server book.

Not only are you bound to forget something, but your guests may not feel entirely comfortable either. If they’re worried you’re going to forget they want their sauce on the side, they may be less inclined to ask questions about specials or which dishes are your favorites. And if guests feel like they have to stick to the basics, you’re missing out on all of your upselling opportunities.

Just for the night, don’t be a hero: write down everyone’s order!

4. Bring in some help

Depending on how many guests you have at one table, you might need more help than normal — and there’s no shame in that.

If you’re aware that a big party is on the books, coordinate with your team ahead of time. For example, see if you can have an assigned busser or bartender on call to help you keep drinks filled, tables clean, and guests happy.

Wowing Your Guests

To secure the huge tips that come with large parties, you’ll have to go above and beyond.

Be ready to make suggestions. Being knowledgeable about the menu always reflects well. Explain your specials in detail, offer drink pairings, and accommodate guests with special requests. This is your shot to upsell and increase the bill!

Keep the drinks flowing. No one wants an empty glass. Send bussers around with pitchers to top off waters, and always be ready to grab another round of cocktails.

Stay in contact with the kitchen. Give the chefs a heads up that you’re going to put in a large order so they can prepare accordingly. With more preparation, they’ll be able to get the whole table’s food out in a timely manner. No long waits for everyone to receive their food!

Pre-bus as much as possible. Keep the table neat and tidy, so they have rooms for multiple rounds of appetizers, drinks, and dessert.

Use your seat numbers. You shouldn’t have to serve entrees as if it’s an auction. Instead of announcing each dish to ask, “who had the burger?” you should be able to reference their seat number and pass each entree to the right guest. It’s a simple way to show your serving prowess (and speed up the serving process!).

Even with a crowd at your table, you can go above and beyond on service. Your guests will take notice and show their gratitude on the tip line (more on that later).

Splitting the Bill

You’ve made it through most of the craziness of a large party — but now it’s time to settle the bill. Before everyone closes out their tabs, you might have to navigate a few sticky situations.

Who’s paying?

It’s always awkward to stand next to the table while people fight over who’s taking care of the bill. Here’s what you can do to alleviate some tension:

If someone offers to pay early on in the meal, take them up on it. Go ahead and keep their card so you can run it before the arguments start.
When 3 different people want to pay for the meal, offer to split the bill evenly. They probably won’t take you up on it, but your suggestion should get one of the parties to acquiesce.
Ask how checks will be split at the beginning of the meal to avoid the awkward card dance at the end. You’ll also have an easier time splitting items if you know ahead of time!

To auto-grat or not to auto-grat

Do you want to make sure you get your full 20% tip after a big table runs you ragged? Or would you rather take the risk in hopes that you’ll get an even bigger tip?

If your restaurant has an auto-gratuity policy for large parties, some servers prefer to take the sure thing and hope that your guests feel inclined to give you an extra thanks on top of it. Most guests aren’t offended and even appreciate that they don’t have to do any math — but make sure that they’re expecting the service charge. A simple line like, “We have already included a 20% gratuity in accordance with our large party policy,” goes a long way.

When you have a really fun rapport with a table, it might be the right time to forgo the auto-grat and let your guests decide how much they’d like to thank you. Keep your guests in the know, too! Some may assume that you included gratuity and skip the tip line altogether.

Either way, steel yourself before you look at their final bill. You might be surprised when customers leave less than you expected, or you might be treated to a heavier-than-average tip.

Tipping out

After it’s all said and done, your manager may have a tip out policy for supporting bussers and bartenders who assist with large parties. Make sure you know what to expect to take home after tipping out your team.

And managers, Kickfin makes large party tip outs easy. Make sure that your event bartender gets their fair share of server tip outs, without spending hours with your calculator.

>>Learn more about Kickfin’s newest tip calculation features

Whether you’re hosting a graduation party or taking care of a corporate holiday dinner, be ready to handle it with the same care and attention you give to a two-top — and let the big tips roll in!