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States with no tip credit: what changes for your tip pool

Last reviewed 2026-11-07 · US law

In seven states tips never count toward the minimum wage. That costs more in payroll — and it also unlocks something: because nobody is paid under a tip credit, federal law lets these houses include cooks and dishwashers in the pool. State rules still shape who can share and how tips are handled.

The seven states and their 2026 minimum wages

Guam also requires the full minimum wage before tips. Hawaii allows a small credit only when the employee’s wages plus tips exceed the minimum by a set margin, and the District of Columbia is phasing its tipped wage up on a schedule the Council has revised more than once — both are worth checking at the official source rather than assuming.

What “no tip credit” changes

1. Kitchen staff can be in the pool — under federal law

The federal rule that limits tip pools to customarily tipped employees applies only when the employer takes a tip credit. In these states no employer takes one, so the FLSA permits a “nontraditional” pool that includes cooks, dishwashers and other back-of-house staff. Managers and supervisors remain excluded everywhere.

2. State law still decides who is eligible

Federal permission is not state permission. California limits pools to the chain of service (which courts have read to include kitchen staff). Washington’s L&I allows mandatory pools that include kitchen staff and hourly leads, excludes salaried-exempt managers and owners, and bars requiring anyone to contribute more than they received in tips. Oregon’s BOLI likewise allows pools that exclude the employer, managers and supervisors. Minnesota is the outlier: §177.24 says tips are the employee’s property, an employer may not require an employee to share them, and any sharing agreement must be made by the employees “without employer coercion or participation” — the employer may only safeguard and distribute what the employees agreed to. Montana, Nevada and Alaska follow the federal framework with the full-wage requirement added.

3. Side work rules are moot

The two-hour/20% debates exist to police the tip credit. With no credit, every hour is paid at the full minimum regardless of what the employee is doing.

4. Card fees

California and Minnesota forbid deducting card processing fees: the full tip on the card must reach the employee by the next payday. Washington allows only the actual proportional transaction fee to be passed on (10 cents on a $10 tip with a 1% fee, in L&I’s example). In Alaska, Montana, Nevada and Oregon the federal proportional-fee rule is the fallback; check the state source before deducting anything.

5. Service charges

Washington requires employers to disclose on the menu and receipt what percentage of a service charge goes to employees, and anything not disclosed as retained by the house must go to the staff who served. Minnesota treats mandatory charges the customer could reasonably take for a tip as tips unless the employer clearly tells the customer otherwise. Elsewhere service charges are the employer’s revenue unless represented as gratuities.

Practical effect on your percentages

Because staff in these states earn a full wage before tips, tip-outs to the kitchen are both legal and common in California, Washington and Oregon, typically in the 1–5% of sales range (see tip-out percentages). Many Seattle and Portland houses have replaced tips with service charges precisely because the service charge can be shared with the kitchen as wages without any pool rules; the trade-off is payroll tax on the whole amount and the disclosure requirements above.

This guide is general information for operators, not legal, tax or payroll advice. Rates and rules change; the official sources above are the authority. SplitTips applies the rule you set and does not decide what is lawful in your jurisdiction.