Minnesota Tip Laws: A Hospitality Manager’s Guide

Key Takeaways

• Minnesota tip laws prohibit the use of tip credits – employers must pay full state minimum wage.
• Tip pooling is legal but must be voluntary and restricted to tipped employees only.
• Under Minnesota gratuity laws, tips belong 100% to the employee who earned them.
• Employers may not deduct credit card fees from gratuities.
• Accurate tracking and transparent policies, supported by digital tools like eTip, help simplify compliance.

Minnesota tip laws are strict compared to other states. Unlike places that allow a tip credit system, Minnesota law does not – which means employers must pay all employees the full state minimum wage regardless of how much they earn in tips.

For hospitality operators, that creates both a compliance challenge and an opportunity. By understanding the nuances of Minnesota tip laws – and implementing smart, transparent systems – you can stay compliant, support your staff, and build trust across your team.

In this article, we’ll walk through what Minnesota hospitality operators need to know – from who owns tips, to how pooling works, to what you’re expected to report. We’ll also show how tools like eTip can help make compliance a whole lot simpler.

Who Owns the Tips Under Minnesota Tip Laws?

According to the Minnesota Department of Labor and Industry, gratuities must be fully passed on to the employee and cannot be counted toward minimum wage.

That means:

• Employers cannot keep or claim any portion of employee tips.
• Tips may not be redistributed to non-tipped staff or managers.
• Employers may not deduct any portion of credit card processing fees from an employee’s tips.

Violating these rules can lead to some serious legal consequences, including wage theft claims and Department of Labor investigations.

No Tip Credit Allowed in Minnesota

Unlike many other states, Minnesota tip laws do not allow the use of a tip credit. That means:

• Employers must pay 100% of the state minimum wage – currently $11.13/hour. 
• Tips are not allowed to count toward meeting the minimum wage requirement.

This distinction is critical. Even if your servers or bartenders earn significant tips, you’re still legally obligated to pay the full hourly wage.

Minnesota Gratuity Laws and Tip Pooling

Minnesota gratuity laws allow tip pooling – but it must be entirely voluntary and limited to employees who regularly receive tips. If you’re thinking of implementing a tip pool, remember the following: 

Allowed participants: 

• Servers
• Bartenders
• Bussers
• Valets

Not allowed:

• Managers or supervisors
• Non-tipped back-of-house staff (unless voluntarily agreed and legally structured)

Employers may not require participation in a tip pool. According to Minnesota gratuity laws, employees must opt in voluntarily – and they must be fully informed about how the tips are being shared.

To avoid confusion, disputes, and reduce the potential for mistakes, it’s worth documenting your pooling policy clearly, and collecting written consent from team members. 

It’s also smart to regularly revisit your tip pooling procedures. As staffing structures evolve and new employees join, ensuring everyone is aware of how pooling works – and who is included – helps keep things fair and transparent, while ensuring legal compliance under Minnesota gratuity laws. 

Service Charges vs. Gratuities in Minnesota

Another key distinction in Minnesota gratuity laws is between service charges and tips.

• Gratuities (tips): Voluntary payments from customers to staff. 100% must go to the employee(s) intended.
  
• Service charges: Mandatory fees set by the business – usually added for large groups or private events. These are considered revenue, unless specifically designated in writing to be paid to employees.

If you’re adding service charges to bills, make sure to be clear with the language you use. Use terms like “administrative fee” or “not a tip” if the fee isn’t going to employees. Mislabeling these charges can result in legal action for wage violations or misrepresentation.

Reporting & Tax Obligations in Minnesota

The IRS provides detailed guidance on tip reporting requirements for both employers and employees. Like federal law, Minnesota tip laws require employers to:

• Make sure that employees report all tips over $20/month
• Accurately track and record all gratuities (cash and digital)
• Withhold applicable taxes (income, Social Security, Medicare)
• Provide correct reporting on W-2 forms

Failure to track tips accurately – especially in cash-heavy environments – can quickly become a red flag for auditors. That’s why it’s important to develop a consistent, reliable method of tip tracking.

Modern tipping solutions make it easier to store records securely and access them instantly during audits, while offering a range of other benefits. 

With eTip, every transaction is timestamped, traceable, and linked to the appropriate team member – making tax time less stressful and protecting your business from potential compliance pitfalls.

Common Problems Adhering To Minnesota Tip Laws

Even with the best intentions, businesses often struggle to comply with Minnesota tip laws. Some of the most common issues include:

Manual tracking

Spreadsheets, notebooks, or verbal reporting are prone to human error. These systems can lead to underreporting, misallocated tips, and noncompliance.

Credit card fee violations

Even if the guest tips $5 on a card, the employee must receive the full $5 – you cannot deduct any transaction fees.

Pooling disputes

Without clearly defined, voluntary pooling policies, it’s easy for disagreements to arise between team members, creating tension and morale issues.

Lack of staff awareness

Even if your systems are compliant, problems can arise when team members don’t fully understand Minnesota tip laws or your internal policies. Employees may unintentionally misreport tips, misunderstand pooling rules, or expect practices common in other states (like tip credits) to apply.

How eTip Helps With Compliance

Digital tipping tools like eTip make it easier than ever to navigate Minnesota tip laws and manage tip distribution effectively, thanks to automation, transparency, and real-time tracking.

Here’s how eTip supports compliance:

• Instant digital payouts: Tips go directly to employees – no delays, no manual handoffs.
• Built-in reports: Get IRS- and DOL-compliant documentation without the spreadsheets.
• Custom tip pooling: Split tips the way your team actually works – voluntarily and transparently.
• No-fee card tips: Ensures employees receive the full tip amount – no deductions.
• Role-based controls: Prevents managers from being added to pools accidentally.
• Employee access and education tools: Team members can view their tip earnings in real time and access records directly from their device. This level of visibility increases trust and helps reduce confusion around payouts.

The Trajectory of Tipping in Minnesota

As tipping policies face more legal attention, Minnesota operators can’t afford to wait when it comes to compliance. With fewer guests carrying cash and more expecting digital options, modern tipping tools are becoming a must – both to stay legal and to support your staff.

If you want to take tipping out of the gray area – and into the future, eTip can help you get there. 

FAQ: Minnesota Tip Laws