Florida Bar Journal

Navigating the Evolving Legal Apparatus Regulating Tipped Employees

The legal framework governing tipped employees in the U.S. has undergone notable transformation shaped by administrative rulemaking, judicial recalibration, and expanding state and local regulations. Developments ranging from the Supreme Court’s abolition of Chevron deference, to the Department of Labor’s (DOL) oscillating guidance on restrictions associated with non-tip producing activities have created a compliance environment that is both dynamic and exacting. Simultaneously, the distinction between voluntary tips and compulsory service charges remains outcome-determinative for ownership, tip credit and wage calculations, and compliance planning. This article analyzes the current framework for the tip credit, clarifies legal differences between tips and service charges, explains the post-Loper Bright review posture for time spent on duties that do not produce tips, cautions against conflation of federal laws, and highlights Florida’s higher minimum wage and frozen tip credit.

The Fair Labor Standards Act Tip Credit: Scope, Prerequisites, and Limits

The Fair Labor Standards Act (FLSA) generally requires that an employer pay its employees the statutory minimum wage for all hours worked. Since 1966, however, the FLSA has authorized employers to take a “tip credit” toward their minimum wage obligations for employees “engaged in an occupation in which [they] customarily and regularly [receive] more than $30 a month in tips.”^[1] Properly invoked, the tip credit permits employers to pay a direct wage (also known as a “cash wage”) below the applicable minimum wage with the employee’s tips bridging the gap between the direct wage and the minimum wage. The rationale behind the tip credit is that a large portion of a tipped employee’s total earnings are derived from tips and that, with tips, these employees earn in excess of the statutory minimum wage. However, this mechanism is strictly conditioned on meeting certain requirements.

First, the employer must determine that the employee qualifies as a “tipped employee,” which is defined as an employee engaged in an occupation in which they customarily and regularly receive more than $30 a month in tips.^[2] In this context, “customarily and regularly” can be less than constant but must be more than occasional.^[3] Second, an employer taking a tip credit must provide the employee oral or written notice of the FLSA tip credit requirements.^[4] Proper notice requires specific disclosures to the employee prior to taking the tip credit.^[5] Third, the combined amount of the direct wages paid by the employer and the employee’s retained tips must reach, at the very least, the applicable minimum wage.^[6] Should the sum fall short, the employer is obligated to make up the difference.^[7] Fourth, when taking a tip credit, tip pooling is only permitted among employees who customarily and regularly receive tips.^[8]

Regardless of whether an employer takes a tip credit towards its minimum wage obligations, an employer is prohibited from keeping tips received by its employees.^[9] That prohibition extends to managers, supervisors, and owners.^[10] Consequently, managers, supervisors, and owners are broadly prohibited from receiving money from tip pools.^[11]

Tip Pooling

A tip pool exists when an employer requires its tipped employees to share a portion, or all, of their tips with other employees. Employers who forego the tip credit — therefore, directly paying their tipped employees the full minimum wage — may include both tipped and non-tipped non-managerial employees in the tip pool; such a tip pool is sometimes called a “nontraditional” tip pool.^[12] Where an employer utilizes the tip credit for its tipped employees, though, the tip pool must solely consist of tipped employees; such a tip pool is described as a “traditional” tip pool.^[13] Thus, for an employer, the first step in implementing a tip pool requires deciding whether to directly pay the full minimum wage or take a tip credit toward their minimum wage obligations.

For those employers who take the tip credit, the second step is to determine whether an employee meets the FLSA definition of “tipped employee.” In making such a determination, the paramount inquiry is whether the employee receives more than $30 a month in tips customarily and regularly in the occupation in which they are engaged. Where the employee customarily and regularly receives more than $30 per month in tips directly from customers, the inquiry ends and tipped status attaches. For example, in Palacios v. Hartman and Tyner, Inc., 2014 WL 7152745 (S.D. Fla. Dec. 15, 2014), the court determined a poker room cashier — who worked behind a cage for security reasons — received tips in excess of $30 per month directly from patrons. Upon that initial finding, the Palacios court did not further analyze the cashier position or its functions. Instead, it ended the inquiry and found the cashiers to be tipped employees, which permitted their legal inclusion in a tip pool.^[14]

Certain roles, such as servers and barbers, are quintessential examples of tipped employees.^[15] Likewise, employees working as dishwashers typically do not meet the FLSA’s definition of tipped employee.^[16] However, employers should avoid making categorical assumptions of tipped classification. There are instances in which it is unclear whether an employee routinely receives tips exceeding the $30 threshold, whether directly from the customer or indirectly from the tip pool. In those scenarios, courts and the DOL have looked to the level of customer service and customer interaction, including the nature and frequency of such customer facing work, as relevant to determining tipped employee status.^[17] For example, in Santana v. RCSH Ops., LLC, 2012 WL 463822, at *2-3 (S.D. Fla. Feb. 13, 2012), the U.S. District Court for the Southern District of Florida found that food runners, who delivered salads, breadsticks, appetizers, and entrees to customer’s tables to assist the servers, had more than de minimis interaction with customers and were, thus, tipped employees whose presence did not invalidate an otherwise valid traditional tip pool. On the other hand, per the U.S. District Court for the Middle District of Florida, in Rubio v. Fuji Sushi & Teppani, Inc., No. 6:11-cv-1753-Orl-37TBS, 2013 WL 230216, at *3 (M.D. Fla. Jan. 22, 2013), kitchen chefs who prepared food inside a kitchen were not tipped employees — even though they sometimes interacted with customers who wished to compliment or complain of the food prepared — because their customer interaction was minimal. The key distinction is that the food runners were visible to customers and routinely interacted with them directly by virtue of their food service while the kitchen chefs were typically completely out of view to the customers and had only de minimis, seemingly incidental, interaction with customers. As the example of the kitchen chefs in Rubio demonstrates, a strong indicator that an employee is not a tipped employee under the FLSA is that the employee spends the majority of their time in non-public areas with little customer interaction.

Howard v. Second Chance Jai Alai LLC, No. 5:15-CV-200-OC-PRL, 2016 WL 3349022 (M.D. Fla. June 16, 2016), further illustrates this point. In Howard, “cage department” employees, like the caged poker room cashiers in Palacios, were included in a tip pool. The court noted that while some of these employees appeared to have frequent customer interaction due to their teller and chip running duties, others in the group — the “vault” employees — allegedly spent most of their time in a vault closed off from the public by walls and doors.^[18] The Howard court was confronted with evaluating whether vault duties were part of a “cage department” employee’s job, or if those employees who spent the majority of time in a vault were engaged in a separate occupation from their cage department counterparts. The reasoning employed in Howard highlights two distinct realities: 1) a singular department or division can incorporate tipped and non-tipped employees, and 2) the ability to present evidence that an employee routinely receives more than $30 per month in tips is crucial. The first reality is not a free-standing peril. A department or division can lawfully house a melting pot of tipped and non-tipped employees; the danger arises when an employer takes a tip credit for the tipped employees and creates a tip pool that includes the non-tipped employees. The second reality is obvious when comparing Palacios and Howard. The Palacios court ended the inquiry and validated the tip pool because the record proved that the cashiers regularly received more than $30 per month in tips directly from patrons. On the contrary, the Howard court did not have evidence of satisfaction of the FLSA’s definition of “tipped employee,” which precluded the court from deciding competing issues of fact on summary judgment.

The inability to show tipped status at an early stage invites prolonged litigation. Litigation costs alone should motivate employers to conduct an in-depth analysis of FLSA compliance prior to receiving a claim. Employers are not flying blind. The DOL has published guidance for employers engaging in a tipped status probe. For example, the DOL has issued opinion letters recognizing that front-of-house oyster shuckers,^[19] sushi chefs,^[20] and sommeliers,^[21] based on the specific facts presented to the DOL, could be considered employees who customarily and regularly receive tips — and, therefore, participate in a tip pool — primarily because the employees had sufficient interaction with customers. In recognizing oyster shuckers as validly included in a tip pool, the DOL found the shuckers were “visible and accessible to the dining room,” directly interacted with customers by sharing, detailing, and recommending oyster offerings, and fielded questions about the different options while preparing the oysters for and in front of the customers^[22] despite the fact that they did not perform traditional server duties like initiating sales and taking orders.^[23] Like the oyster shuckers above, sushi chefs who prepared and served sushi to customers, but typically did not take or solicit orders, were treated like “counter persons” due to their direct contact and frequent interaction with customers.^[24] Further, unlike oyster shuckers and sushi chefs, sommeliers do not prepare any food items. Instead, a sommelier brings a selected bottle to the table, serves the wine directly to the customer, and often educates the customer on the wine list and makes suggestions. As these examples illustrate, the failure to perform traditional serving duties does not end the inquiry. Instead, the key factor that runs through the aforementioned jobs as a common thread is frequent and direct customer contact and interaction. In short, when it is unclear if an employee routinely receives more than $30 per month in tips, an employer should next look to an in-depth analysis, with the benefit of guidance from the DOL and applicable caselaw, of the level of customer contact and interaction to determine whether the employee’s presence in a traditional tip pool (where the employer takes a tip credit) is sanctionable.

Inclusion of non-tipped employees in a traditional tip pool, under which an employer takes a tip credit, can expose an employer to legal liability for vast damages. The burden rests on the employer to establish that it is entitled to claim a tip credit.^[25] Satisfaction of that burden requires the employer to show, among other things, that it gave proper notice and the employees kept all of their tips, except in cases of a valid traditional tip pool.^[26] Even if the employees did not suffer any actual economic harm as the result of an invalid tip pool, the employer may not claim the tip credit for the employees in such a pool.^[27] Invalidity of a tip pool would entitle the employee to payment of minimum wage directly by the employer for all hours the employee worked in which the tip pool was used.^[28] Moreover, district courts “generally must award a plaintiff liquidated damages that are equal in amount to actual damages” once there is a finding the employer willfully violated the FLSA.^[29] As explained above, violations of FLSA tip pool rules have serious consequences. Employers must make it clear to employees how tips are handled in the establishment. If taking a tip credit, an employer would be wise to avoid categorical assumptions and instead process the decision in careful steps: 1) Determine whether the employee regularly receives $30 per month in tips; if so, this is a tipped employee; if it is unclear, assess the substance of the role with specific attention to customer interaction and service delivery; 2) balance these factors to make an informed decision regarding how to best protect the business against potential FLSA violations.

Tips Versus Service Charges: Legal Distinctions and Compensation Consequences

When evaluating the obligations and benefits associated with taking a tip credit, it is important to understand that tips are not the same as service charges. A tip is a sum determined solely by a customer and given as a gift or gratuity in recognition of some service performed for the customer.^[30] As explained above, a specified amount of employees’ tips may be credited toward an employer’s minimum wage obligations, but only to the extent authorized by the FLSA or other applicable law. A mandatory service charge, by contrast, is a compulsory fee imposed by an establishment on a customer and appears as a mandatory line item on the customer’s bill, such as an 18% service fee added to the bill.^[31] This distinction has material consequences. Tips belong to employees, subject to valid pooling arrangements. Employers cannot commandeer tips for themselves or share tips with management. Service charges, however, belong to the employer. The employer chooses how it wants to allocate or spend the monies received from a service charge. Importantly, the employer may, but is not obligated to, use service charges to offset their wage obligations under the FLSA.

The 11th Circuit Court of Appeals’ decision in Compere v. Nusret Miami, LLC, 28 F.4th 1180 (11th Cir. 2022), is instructive. There, one of the arguments made by the Compere plaintiffs was that managerial discretion to remove the service fee for any dissatisfied patron rendered the fee non-mandatory and, therefore, a tip that could not be lawfully retained by the employer or used to satisfy the employer’s FLSA obligations where the employer did not claim a tip credit.^[32] The court rejected that contention in holding that the relevant inquiry is whether the customer retains discretion to determine the amount paid, not whether the employer’s agents had discretion to remove the fee.^[33] Compere’s non-dispositive treatment of post hoc managerial voiding of a service charge signals that employers can defend treatment of mandatory charges as service charges rather than tips, even if they are occasionally waived by the employer, provided the customer has no ability to determine whether to pay the service charge.^[34] The 11th Circuit’s decision reaffirms that the determinative factor of a service charge is whether the fee is compulsory, even if it is subject to the discretion of management to remove it. If so, it is a service charge.

Tips and service charges are imbedded in our daily life — restaurants, bars, barber shops, delivery apps, and ride shares all prompt us to pay extra, sometimes as a choice and other times as an obligation. For example, your neighborhood cigar shop has an excellent selection of cigars and knowledgeable staff to assist you. At the register, you present your credit card, receive a receipt of your items, and write in $5 on the blank line reserved for gratuity. This is a tip, as made clear by its voluntary nature.^[35] Take this same scenario but at the end of your receipt there is a line item with an 18% fee. You, the customer, did not agree to the amount yet it is non-negotiable. This is a service charge. Sometimes, tips and service charges are paid in the same transaction. In the scenario described above, your receipt may have an obligatory 18% service charge, but the staff helped you pick the perfect cigar which prompts you to leave an additional $5 tip. If in any of these scenarios you leave your $5 in a tip jar, any tip jar monies would be subject to FLSA tip pooling rules.^[36] In reality, when voluntary tips and compulsory service charges coexist, the differing payroll treatment flows from the legal characterization, not the label on a receipt.

The DOL’s 80/20/30 Rule and the Dual Jobs Doctrine

Where job duties become fluid, flowing from one particular job to another, evaluating tipped and non-tipped work, and when and for whom an employer may take the tip credit, becomes increasingly arduous. The DOL recognized this and used its rule promulgating authority to create a “dual jobs” regulation.^[37] An employee has dual jobs when the employee is employed by the same employer in two separate and unrelated occupations: a tipped occupation and a non-tipped occupation.^[38] In such a situation, an employer can only take a tip credit for the hours in which the employee worked in their tipped occupation.^[39]

A related but different issue is how much time a tipped employee, for whom an employer takes a tip credit, can spend in their tipped occupation on related duties that are not directed toward producing tips. In 1988, the DOL published a so-called “80/20” guidance in its Field Operations Handbook.^[40] The 80/20 guidance or 80/20 rule, as it is sometimes called, allowed employers to take a tip credit for employees who spend no more than 20% of their time on related but non-tipped duties incidental to the tipped occupation.^[41]

The DOL’s enforcement and construction of the 80/20 rule has shifted over time.^[42] In 2021, the DOL promulgated the 80/20/30 rule, which both refined and tightened the 80/20 framework. The 80/20/30 rule: 1) capped “directly supporting” non-tipped tasks at 20% of the employee’s hours worked at the tipped rate; and 2) imposed a 30-minute continuous-duration limit, which required that blocks of directly supporting work exceeding 30 consecutive minutes could not be paid at the tip-weighted, sub-minimum wage even if the 20% threshold was not exceeded.^[43] From a compliance perspective, the 80/20/30 rule demanded granular time and task tracking, distinguishing of directly tip-producing tasks from directly supporting tasks and from work not part of the tipped occupation, and ensuring continuous supporting work did not exceed the 30-minute cap. In short, it was a compliance nightmare for employers. Routine duties such as rolling silverware, restocking condiments, or making coffee fell into the “directly supporting” category, paid at the full minimum wage when the rule’s thresholds were crossed. While employers rushed to create a system of compliance, challenges to the 80/20/30 guidance were already underway.

Judicial Review and Constraints on Agency Rulemaking

In one of the boldest declarations of the 2023-2024 term, the U.S. Supreme Court upended Chevron deference in Loper Bright Enters. v. Raimondo, 603 U.S. 369, 144 S. Ct. 2244 (2024). That decision instructed courts to exercise independent judgment in reviewing agency interpretations of statutes.^[44] While courts still have the benefit of an agency’s “body of expertise and informed judgment” at its disposal, an agency interpretation can no longer bind a court.^[45] This changed the judicial landscape significantly because courts must now review agency interpretations de novo, which raises the bar for agencies looking to institute lasting guidance. In practice, Loper Bright will likely cause increased forum variability as well as greater litigation risk to agency guidance. In the wake of Loper Bright, the Fifth Circuit in Restaurant Law Center v. DOL, 120 F.4th 163 (5th Cir. 2024), reviewed the DOL’s 80/20/30 rule de novo and invalidated it because the Fifth Circuit found the rule lacking a textual foundation in the FLSA and held it was arbitrary and capricious.^[46] The court reasoned that the statute defines a tipped employee by tip receipt, not the micro-classification of duties within the occupation, cautioning that the 80/20/30 rule risked nullifying the statutory “in excess of $30-per-month” threshold.^[47]

Notably, the Fifth Circuit distinguished the dual jobs regulation, which it stated, “suffers from none of the infirmities that we have identified with the [80/20/30 rule],” thus, preserving the principle that employees cannot be treated as employed in their tipped occupation when they are performing a separate, unrelated non-tipped occupation.^[48] The court made note that, although longstanding, they were “not persuaded that the 80/20 standard…can defeat the FLSA’s plain text.”^[49]

After the Fifth Circuit vacated the 80/20/30 rule, the DOL published a final rule reinstating its original 1967 dual jobs regulation and removed the 80/20/30 language from its regulation.^[50] The full weight of the Fifth Circuit’s decision and the DOL’s restoration of the 1967 dual jobs regulation remains to be seen, although a few district courts have applied the 80/20 rule even after the Restaurant Law Center decision.^[51] For now, employers and practitioners alike must monitor ongoing litigation and agency responses, including any further rulemaking calibrated to withstand post-Loper Bright review.

Federal Tax Changes and the Risk of Cross-Contamination

Recent federal legislation colloquially characterized as the “No Tax on Tips” or “One Big Beautiful Bill” reconciliation package has prompted confusion about the relationship between federal tax treatment of tipped income and FLSA tip credit eligibility. The No Tax on Tips regulation allows eligible workers to deduct up to $25,000 in tips from their income subject to federal income tax starting on January 1, 2025, and continuing through December 31, 2028.^[52] In September 2025, the IRS released a proposed regulation, the “Occupations that Customarily and Regularly Received Tips; Definition of Qualified Tips,” listing 68 qualifying tipped occupations for which workers can claim a deduction on their “qualified tips.”^[53] Although the IRS consulted the DOL in making the No Tax on Tips job list,^[54] the inclusion of certain occupations within the tax measure — such as pit clerks and kitchen stewards — does not necessarily translate to eligibility as tipped employees under the FLSA.^[55] In fact, it is entirely possible that both pit clerks and kitchen stewards run afoul of the FLSA’s definition of a tipped employee, which turns on whether the employee customarily and regularly receives more than $30 per month in tips.

Employers should strictly segregate the analysis of tipped employees under the FLSA from tax obligations stemming from the No Tax on Tips deduction. The FLSA’s definition of tipped employees and permissible tip credit practices does not expand or contract based on tax classifications, job lists, or deductions created under separate federal tax statutes. Compliance personnel should, therefore, avoid importing tax categories into wage and hour determinations.

Florida’s Layered Regime: Minimum Wage, Tip Credit, and Local Enforcement Regulations

Florida law differs from the federal wage and hour framework under the FLSA in certain respects. As an initial matter, the state’s minimum wage is higher than the federal minimum wage established by the FLSA. Florida’s minimum wage is $14 per hour and increases to $15 per hour on September 30, 2026.^[56] Florida’s tip credit also differs from the FLSA’s tip credit. Florida’s tip credit is fixed at $3.02 per hour (also known as a “frozen” tip credit). As of the most recent increase, the statewide direct wage an employer must pay is $10.98 per hour for tipped employees ($14 minimum wage – $3.02 tip credit = $10.98). Florida employers must adjust payroll practices annually, including updating posters, tip credit notices, and handbooks to ensure that the combined direct wage plus tip credit meets or exceeds Florida's minimum wage.

Although Florida law requires payment of a higher amount, if a Florida employer wants to take a tip credit toward its minimum wage obligations it must follow tip credit rules prescribed in the FLSA. The same goes for following the FLSA rules regarding tip pools and service charges. An employer can perfectly calculate the Florida minimum wage and frozen tip credit, but it would open the floodgates of litigation if applied to non-tipped employees. In addition to perils under federal law, noncompliance exposes employers to liability under the Florida Minimum Wage Act including: back wages, liquidated damages, and attorneys’ fees.^[57] In cases of willful violations, civil penalties may apply to both Florida and FLSA violations.^[58] Moreover, certain counties, such as Miami-Dade and Pinellas, administer wage theft ordinances that contain specific rules and, in some cases, offer expanded damages. For example, treble damages apply upon a finding of unlawful nonpayment of wages under the Miami-Dade County Wage Theft Program.^[59] The Pinellas County Wage Theft and Recovery Ordinance requires the employer to pay damages when retaliation has been established regardless of the outcome of the wage theft complaint.^[60] Because Florida’s statutory regime contains federal, state, and local components, some of which differ from one another, employers must be aware of and comply with all applicable constitutional provisions, statutes, rules, regulations, and ordinances.

Compliance Priorities in a Dynamic Environment

Despite the shifting terrain, there are safe steps employers can take to maximize compliance with wage and hour requirements for tipped employees. Employers should scrutinize and identify which roles qualify as tipped occupations; deliver and (ideally) document the statutory tip credit notice; structure tip pools to exclude managers, supervisors, and owners; ensure tip pools meet the FLSA requirements when a tip credit is taken; distinguish tips from service charges and handle each in accordance with their legal character; and ensure compliance with all applicable laws. Employers should maintain clear job descriptions, training protocols, and timekeeping practices that credibly separate tipped and non-tipped roles.

More broadly, the post-Loper Bright environment requires caution in relying on DOL or other agency pronouncements. Courts are likely to test the durability of DOL and other pronouncements against the FLSA and any other applicable statutory language. In sum, the law governing tipped employees is neither static nor intractable. A careful, compliance-centered approach to the FLSA, state, and local laws, reliance on prevailing jurisprudence, and methodical integration of federal, state, and local wage rules, encourages employers and practitioners to successfully navigate the present environment while mitigating litigation risk.

Jessica M. Pagliery

Jessica M. Pagliery is an attorney with Ogletree Deakins in the firm’s Miami office, where she devotes her practice to labor and employment matters. She is a Florida-licensed attorney who is also admitted to practice before the U.S. district courts for the Southern and Middle districts of Florida.

This column is submitted on behalf of the Labor and Employment Law Section, Yvette D. Everhart, chair, and Alicia Koepke, editor.