What is the deal with tipping in Minnesota? Although there are many legal considerations which must be taken into account when running a service business where customers tip your employees, there is one cardinal sin that comes up the most in service-industry conversations and can get businesses in big trouble: tip-sharing. There are many cautionary tales, but perhaps one of the most infamous recent examples is the $2.5 million Surly agreed to pay last year to settle a tip-sharing lawsuit.

To be clear up front: tips are your employees’ money. Minnesota law prohibits mandatory tip sharing  (requiring employees to share their tips with other employees). This is different from the laws of some other states, and Minnesota’s law can catch multi-state businesses by surprise. Because tip-sharing is such a cultural norm in the service industry, it can be difficult for employers to foster a collegial culture while avoiding misunderstandings about tipping policies.

Here’s the key: the fact that any tip sharing is voluntary must be clearly communicated to employees and documented in writing. Anyone who is training new employees needs to be aware of the importance of this. Make sure that any questions about “how much do you usually tip out the _____?” are first answered with something like, “Your tips are yours, and you can do whatever you want with them.” The trainer could then say something like, “I usually do ___,” or “people typically do ____.” The trainer should make sure to finish by clarifying, “but you decide what you want to do.”

There are limited exceptions to this rule, for example, in the catering industry and in service-counter establishments, like coffee shops. If you operate one of these kinds of businesses, make sure you understand how the tipping laws apply in your particular circumstance.

Again, tipping policies can be a minefield. Minnesota has strict laws about tipping policies. Employers need to be particularly careful regarding issues like automatic gratuities or participating in the tipping-out process. You will also want to make sure your method of handling credit-card tips both complies with the law and is clearly communicated to your applicants and employees, so there are no surprises. There are also tax implications regarding tipping that you will want to make sure you are handling correctly. I hope to address these issues in future articles.

Additional Resources:

• Minnesota Department of Labor: Tips, Tip Credit
  • Minnesota Statute § 177.24: Payment of Minimum Wages
  • Minnesota Administrative Rule 5200.0080: Gratuities/Tips Credits