Two things about Minnesota tip law surprise almost everyone who works in a restaurant, and almost everyone who runs one.
The first is that a mandatory service charge is, by default, the employees’ money. Not the house’s. The statutory definition of “gratuities” sweeps in “an obligatory charge assessed to customers” unless the employer gave the customer clear and conspicuous notice that the charge is not the employee’s property — and the notice requirement has a specified type size.
The second is that as of August 1, 2024, an employer may no longer deduct the credit-card processing fee from a card tip. For decades a Department of Labor and Industry rule expressly allowed a proportional deduction. The legislature repealed that rule and replaced it with a statute requiring the full amount to reach the employee.
Both changes reward precision. Here is the current law, provision by provision.
Does Minnesota allow a tip credit?
No. The rule is one sentence:
No employer may directly or indirectly credit, apply, or utilize gratuities towards payment of the minimum wage set by this section or federal law.
Minn. Stat. § 177.24, subd. 2. The Department of Labor and Industry states the same thing plainly: “No employer may take a tip credit against minimum wages in Minnesota. An employee must be paid at least the minimum wage per hour, plus any tips the employee might earn.”
That is a departure from federal law, not a restatement of it. The Fair Labor Standards Act permits a tip credit: in determining the wage owed a tipped employee, an employer may count “the cash wage paid such employee” plus “an additional amount on account of the tips received by such employee.” 29 U.S.C. § 203(m)(2)(A). Minnesota simply does not let an employer use that mechanism, and the FLSA’s savings clause is what makes the state rule stick: “No provision of this chapter or of any order thereunder shall excuse noncompliance with any Federal or State law or municipal ordinance establishing a minimum wage higher than the minimum wage established under this chapter . . . .” 29 U.S.C. § 218(a).
One piece of federal law does still bite in Minnesota, because it is a floor rather than a permission: “An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” 29 U.S.C. § 203(m)(2)(B). A Minnesota employer that lets a manager into the tip pool violates both regimes at once.
Minnesota also abandoned the large-employer/small-employer split. A single minimum wage now applies to all employers, a change made by 2024 Minn. Laws ch. 110, art. 6, § 3, effective January 1, 2025. The rate is indexed: the commissioner sets it each August 31 by the lesser of five percent or the measured increase in the implicit price deflator for personal consumption expenditures, rounded to the nearest cent, and the new rate takes effect the following January 1. Minn. Stat. § 177.24, subd. 1(c). The Department publishes the current figures — as of January 1, 2026 the state minimum wage is $11.41 an hour, with a $9.31 90-day training wage for workers under 20; effective January 1, 2027 those become $11.87 and $9.68. Minneapolis and St. Paul ordinances may require more. See the Minnesota wage and hour guide.
Whose money is a tip?
The employee’s, and the statute says so twice — once as a rule of ownership and once as a prohibition:
For purposes of this chapter, 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. No employer may require an employee to contribute or share a gratuity received by the employee with the employer or other employees or to contribute any or all of the gratuity to a fund or pool operated for the benefit of the employer or employees.
Minn. Stat. § 177.24, subd. 3 (emphasis added). Note the second sentence covers both directions — an employer cannot take a cut for itself and cannot order the employee to share with coworkers.
What an employer may do is narrow and enumerated. It may, “upon the request of employees, safeguard gratuities to be shared by employees and disburse shared gratuities to employees participating in the agreement”; it may “report the amounts received as required for tax purposes”; and it may “post a copy of this section for the information of employees.” Id. Nothing else.
Employees may still pool voluntarily. The statute says it “does not prevent an employee from voluntarily sharing gratuities with other employees,” but adds the condition that carries the weight: “The agreement to share gratuities must be made by the employees without employer coercion or participation.” Id.
That is the line most often crossed in practice. A manager who suggests a tip-out percentage, drafts the schedule, or tells a new server “here’s how we do it” has participated. A pooling arrangement that employees genuinely built and administer themselves is lawful. The distinction is factual, and the employer’s own emails and schedules usually decide it.
Can I be required to tip out the kitchen?
Not as a condition of employment. The administrative rule is direct: “Pooling or sharing of gratuities may not be a condition of employment.” Minn. R. 5200.0080, subp. 4.
The rule distinguishes two categories. A “direct service employee” is “one who in a given situation performs direct service for a customer and is to be considered a tipped employee.” An “indirect service employee” is “a person who assists a direct service employee, these include, but are not limited to, bus people, dishwashers, cooks, or hosts.” Subp. 6. And the same subpart provides that “[a]n indirect service employee who benefits because the recipient shares the gratuity with him or her shall not have the remuneration considered in the calculation of his or her wages” — the employer still owes that person the full minimum wage in cash. Subp. 4.
Splitting among direct service employees is expressly fine. “When more than one direct service employee provides direct service to a customer or customers in a given situation such as banquets, cocktail and food service combinations, or other combinations, money presented by customers, guests, or patrons as a gratuity and divided among the direct service employees is not a violation of Minnesota Statutes, section 177.24, subdivision 3.” Subp. 8. The Department of Labor and Industry applies the same reasoning to a tip jar, taking the position that dividing tip-jar money among direct service employees working the same shift does not violate the statute.
What changed on the credit-card swipe fee
This is the single most consequential recent development, and it is easy to miss because the change happened in two places at once.
Before August 1, 2024, Minn. R. 5200.0080, subp. 7 provided that where a tip came in on a credit or charge card, “the full amount of tip must be allowed the direct service employee minus only the percentage deducted from the tip in the same ratio as the percentage deducted from the total bill by the service company.” In other words, the house could keep the card processing share of the tip.
The 2024 labor act repealed that subpart outright — 2024 Minn. Laws ch. 110, art. 7, § 10, effective August 1, 2024 — and in the same article added a new statutory subdivision that goes the other way:
(a) Gratuities received by an employee through a debit, charge, credit card, or electronic payment shall be credited to that pay period in which they are received by the employee.
(b) Where a gratuity is received by an employee through a debit, charge, credit card, or electronic payment, the full amount of gratuity indicated in the payment must be distributed to the employee no later than the next scheduled pay period.
Minn. Stat. § 177.24, subd. 3a, added by 2024 Minn. Laws ch. 110, art. 7, § 1, effective August 1, 2024 (emphasis added).
Three operative consequences. No processing deduction. The full amount indicated in the payment goes to the employee; the swipe fee is now the employer’s cost of doing business. A crediting rule. The tip belongs to the pay period in which the employee receives it, which prevents an employer from smoothing card tips across periods. An outside deadline. Distribution must occur no later than the next scheduled pay period — so a restaurant that settles card tips monthly while running biweekly payroll is out of compliance.
If you worked for tips before August 2024 and your pay stubs showed a percentage taken off card tips, that was probably lawful then and is not lawful now. The relevant question is what has happened since August 1, 2024.
Is a mandatory service charge a tip?
By default, yes. This is the definition that decides banquet and large-party disputes:
“Gratuities” means monetary contributions received directly or indirectly by an employee from a guest, patron, or customer for services rendered and includes an obligatory charge assessed to customers, guests or patrons which might reasonably be construed by the guest, customer, or patron as being a payment for personal services rendered by an employee and for which no clear and conspicuous notice is given by the employer to the customer, guest, or patron that the charge is not the property of the employee.
Minn. Stat. § 177.23, subd. 9 (emphasis added). Read the structure. An obligatory charge that a customer would reasonably read as payment for personal service is a gratuity — and therefore the employee’s sole property under § 177.24, subd. 3 — unless the employer gave clear and conspicuous notice to the contrary. The employer bears the burden of having created that notice, before the fact, in a form the customer saw.
The administrative rule supplies both halves. On what counts as an obligatory charge: “service charges, tips, gratuities, and/or surcharges which are included in the statement of charges given to the customer.” Minn. R. 5200.0080, subp. 4a. On what counts as notice:
[C]lear and conspicuous notice that the obligatory charge is not a gratuity is notice clearly printed, stamped, or written in bold type on the menu, placard, the front of the statement of charges, or other printed material given to the customer. Type which is at least 18 point (one-fourth inch) on the placard, or 9 point (one-eighth inch) or larger on all other notices is clear and conspicuous.
Subp. 4b. Eighteen-point on a placard; nine-point or larger on menus, checks, and other printed material. A four-point line at the bottom of a banquet contract does not do it. Neither does an oral explanation.
The practical upshot for an employer: if you want to keep a service charge, disclose it in bold at the specified size, in the material the customer actually receives, and do not describe it in a way that implies it goes to the staff. The practical upshot for a banquet server: if the 20 percent “service charge” on the contract was never disclosed as non-gratuity in the required form, it was your money, and the employer diverted it.
The disclosure the customer is owed — a separate statute
Since January 1, 2025, Minnesota also regulates how the charge appears to the customer, independently of who ends up with the money. Minn. Stat. § 325D.44, subd. 1a(a) makes it a deceptive trade practice to “advertise[], display[], or offer[] a price for goods or services that does not include all mandatory fees or surcharges.” A “mandatory fee” includes a fee that “must be paid in order to purchase the goods or services being advertised,” that “is not reasonably avoidable by the consumer,” or that “a reasonable person would expect to be included in the purchase.” Subd. 1a(b). Government-imposed taxes are excluded. Id.
Restaurants got a specific compliance path rather than an exemption:
A food or beverage service establishment, including a hotel, is compliant with this subdivision if, in every offer or advertisement for the purchase of a good or service that includes pricing information, the total price of the good or service being offered or advertised includes a clear and conspicuous disclosure of the percentage of any automatic and mandatory gratuities charged.
Subd. 1a(h). So a menu price need not bake in the automatic gratuity, provided the percentage is disclosed clearly and conspicuously wherever pricing appears. Subdivision 1b exempts certain motor-vehicle dealer fees, PUC-regulated businesses and their affiliates, and RESPA settlement-service charges other than real estate broker commissions and fees. The subdivisions were added by 2024 Minn. Laws ch. 111, §§ 1–2, effective January 1, 2025, except June 1, 2025 for industries whose prices are regulated by the Metropolitan Airports Commission.
Note that these are two different obligations with two different beneficiaries. Section 177.23, subd. 9 asks whether the employee gets the charge. Section 325D.44, subd. 1a asks whether the customer was told about it. An establishment can satisfy one and violate the other. Deceptive trade practice claims carry their own remedial framework — see the Consumer Fraud Act and Deceptive Trade Practices Act.
Remedies when tips are taken
There are three routes, and the private one is the strongest.
Restitution through the commissioner. Section 177.24, subd. 3 itself provides that “[t]he commissioner may require the employer to pay restitution in the amount of the gratuities diverted,” and — importantly for a worker with no records — “[i]f the records maintained by the employer do not provide sufficient information to determine the exact amount of gratuities diverted, the commissioner may make a determination of gratuities diverted based on available evidence.”
A compliance order. Section 177.24 sits inside the range (§§ 177.21 to 177.435) that the commissioner may enforce by compliance order under Minn. Stat. § 177.27, subd. 4. When such an order issues, subdivision 7 requires the commissioner to order back pay, gratuities, and compensatory damages, “and for an additional equal amount as liquidated damages,” with an additional civil penalty of up to $10,000 per violation per employee for repeated or willful violations.
A private lawsuit. This is the one most tipped workers do not know exists:
An employee may bring a civil action seeking redress for a violation or violations of sections 177.21 to 177.44 and 181.165 directly to district court. An employer who pays an employee less than the wages and overtime compensation to which the employee is entitled under sections 177.21 to 177.44 … is liable to the employee for the full amount of the wages, gratuities, and overtime compensation, less any amount the employer or contractor is able to establish was actually paid to the employee and for an additional equal amount as liquidated damages.
Minn. Stat. § 177.27, subd. 8 (emphasis added). The action may be brought by one or more employees, in the county of violation, the employer’s residence or principal place of business, or any other court of competent jurisdiction. Subd. 9. And fees are not discretionary: “the court shall order an employer who is found to have committed a violation … to pay to the employee or employees reasonable costs, disbursements, witness fees, and attorney fees.” Subd. 10. Subdivision 8 also forecloses the most common defense: “An agreement between the employee and the employer to work for less than the applicable wage is not a defense to the action.”
Doubling plus mandatory fees plus the ability to join multiple employees is what makes a tip case worth bringing even when one worker’s individual loss is modest.
The clock is short. Claims for wages, damages, fees, or penalties under a wage-payment law run two years, extended to three “if the employer fails to submit payroll records by a specified date upon request of the Department of Labor and Industry or if the nonpayment is willful and not the result of mistake or inadvertence.” Minn. Stat. § 541.07(5).
Two adjacent rules worth knowing
Deductions cannot be taken out of tips. Section 177.24, subd. 4 governs deductions “from wages or gratuities,” permitting them only as authorized by §§ 177.28, subd. 3, 181.06, and 181.79, and capping uniform and equipment deductions. No deduction may be made for uniforms, employer-required equipment, consumable supplies, or in-employment travel where it would push pay below minimum wage. On termination the employer “must reimburse the full amount deducted.” Subd. 5. See wage deductions under § 181.79.
Tips do not change the final-paycheck rules. Diverted gratuities unpaid at the end of employment are wages for purposes of the prompt-payment statutes — see Minnesota’s final-paycheck rules. And what your employer had to tell you in writing about your pay rate and pay period when you were hired is set by the wage-theft notice law — see the § 181.032 notice requirements. Tipped workers also accrue earned sick and safe time like every other employee.
Madgett Law, LLC
Madgett Law, LLC represents servers, bartenders, banquet staff, and other tipped employees in claims for diverted gratuities, unlawful tip pools, service charges that were never disclosed as non-gratuity, and credit-card tips paid short of the full amount. We also advise Minnesota restaurants and hotels on service-charge disclosure that satisfies both § 177.23, subd. 9 and the mandatory-fee rules in § 325D.44. If tips have been taken, save your pay stubs, your schedule, and any photograph of the menu or banquet contract showing how the charge was described. Call 612-470-6529 or send us a message.
Sources: Minn. Stat. § 177.23, subd. 9 (definition of “gratuities,” including obligatory charges absent clear and conspicuous notice). Minn. Stat. § 177.24, subd. 1(a) (single minimum wage for all employers), subd. 1(c) (annual inflation adjustment; lesser of five percent or the implicit price deflator measure; effective the next January 1), subd. 2 (no tip credit, direct or indirect), subd. 3 (gratuity is the sole property of the employee; no employer-required sharing; three permitted employer acts; voluntary sharing without employer coercion or participation; commissioner restitution and evidence rule), subd. 3a(a)–(b) (card and electronic gratuities credited to the pay period received; full amount distributed no later than the next scheduled pay period), subd. 4 (deductions from wages or gratuities; uniform and equipment limits), subd. 5 (reimbursement at termination). Minn. Stat. § 177.27, subd. 4 (compliance orders covering §§ 177.21 to 177.435), subd. 7 (back pay, gratuities, compensatory damages plus an equal amount as liquidated damages; up to $10,000 per violation per employee for repeated or willful violations), subd. 8 (private action; gratuities; liquidated damages; sub-minimum agreement is not a defense), subd. 9 (venue; one or more employees), subd. 10 (mandatory costs and attorney fees). Minn. Stat. § 177.30 (three-year recordkeeping; penalties up to $1,000 per failure and $5,000 per repeated failure). Minn. Stat. § 325D.44, subd. 1a(a)–(b) (mandatory-fee pricing), subd. 1a(h) (food and beverage establishment compliance through clear and conspicuous disclosure of the percentage of automatic and mandatory gratuities), subd. 1b (exemptions). Minn. Stat. § 541.07(5) (two-year period; three years if willful). Minn. R. 5200.0080, subp. 4 (pooling may not be a condition of employment; indirect service employee remuneration excluded from wage calculation), subp. 4a (obligatory charges include service charges and surcharges in the statement of charges), subp. 4b (clear and conspicuous notice; 18-point on a placard, 9-point or larger elsewhere), subp. 6 (direct and indirect service employees), subp. 7 [Repealed, L 2024 c 110 art 7 s 10] (former proportional credit-card deduction, quoted from the archived rule version), subp. 8 (divided gratuities among direct service employees). 2024 Minn. Laws ch. 110, art. 6, § 3 (single minimum wage; effective January 1, 2025), art. 7, § 1 (adding § 177.24, subd. 3a; effective August 1, 2024), art. 7, § 10 (repealing Minn. R. 5200.0080, subp. 7; effective August 1, 2024). 2024 Minn. Laws ch. 111, §§ 1–2 (adding § 325D.44, subds. 1a and 1b; effective January 1, 2025, and June 1, 2025 for Metropolitan Airports Commission–regulated prices). 29 U.S.C. § 203(m)(2)(A) (federal tip credit), § 203(m)(2)(B) (employer may not keep tips, including managers and supervisors), § 218(a) (no provision of the FLSA excuses noncompliance with a higher state minimum wage). Minnesota Department of Labor and Industry, “Minimum wage in Minnesota” (state minimum wage $11.41 as of January 1, 2026 and $11.87 effective January 1, 2027; training wage $9.31 and $9.68; no tip credit) and “Tips, tip credit” (tip-jar and shift guidance; full card tips required as of August 1, 2024), dli.mn.gov.
This article is general legal information about Minnesota law. It is not legal advice, it does not create an attorney–client relationship, and no outcome is promised or implied. Statutes, rules, and published wage rates change; verify current text and current rates before relying on any provision discussed here.