Michigan Tip Pooling Rules: What Employers Can and Can’t Do

Tipped employees often earn a significant portion of their compensation from tips and gratuities. In many restaurants and other businesses, these tips are “pooled” and divided among employees based on their roles and hours worked. While tip pooling is legal under federal and Michigan laws, there are rules about what an employer can and cannot do. Tipped workers benefit from understanding how Michigan law regulates tip-sharing arrangements and the differences between state and federal regulations.

How Do Tips Affect Employee Pay?

Tips may be part of an employee’s compensation, but they are treated slightly differently from direct hourly wages. The Federal Fair Labor Standards Act of 1938 (FLSA) established the minimum wage and other worker protections, including many regulations relating to how tips must be paid.

Under the FLSA, employers can offset tipped employees’ direct hourly wages with a “tip credit.” However, the law requires employers to pay tipped employees at least $2.13 per hour in direct hourly wages, regardless of the amount the employee earns in tips.

• Example: An employee works 40 hours per week and earns $400 in tips, averaging $10 per hour. The employer can use those earnings to offset the minimum wage requirements (currently $7.25 per hour), but must pay the employee at least $2.13 per hour.

If an employee’s average hourly tips (per workweek) do not cover the difference between the tipped and non-tipped minimum wages, the employer must pay the difference.

• Example: An employee works 40 hours per week and earns $40 in tips, averaging $1 per hour. The employer can offset their hourly wage by only $1 per hour and must pay them at least $6.25 per hour in direct wages.

In general, tips earned by an employee must be paid in full to that employee. An employer, manager, owner, or supervisor cannot keep any portion of an employee’s tips. However, in some workplaces, tipped employees share or “pool” tips. Both federal and Michigan laws allow these arrangements. 

Federal Tip Pooling Rules

The FLSA allows two types of tip pooling arrangements:

• Traditional tip pooling. If an employer uses the tip credit to pay tipped employees less than minimum wage, it can’t distribute any of the pooled tips to non-tipped employees. The employer must notify employees of any required tip pool contribution amount and may take a tip credit only for the tips each tipped employee ultimately receives.
• Non-traditional tip pooling. If an employer pays its employees at least the federal minimum hourly wage, it may impose a mandatory tip-pooling arrangement that includes non-tipped employees.  

Both types of pooling arrangements prohibit employers from retaining any tips for any purpose. Managers and supervisors may not receive a share of the tip pool. However, employees who work dual roles may be able to participate in a tip pool when working in a non-managerial capacity.

Employers must distribute each employee’s share of the pooled tips on their regular payday. If an employer cannot determine the correct distribution before processing payroll, it must do so as quickly as possible.

Michigan Tip Pooling Laws

While Michigan follows the FLSA in many ways, it has its own rules for minimum wage, tip credits, and tip pooling. Some key differences are:

• Higher minimum wage. As of January 1, 2026, Michigan’s minimum wage is $13.73 per hour, and the tipped minimum wage is $5.49 per hour (40% of the standard minimum wage). The hourly minimum wage is scheduled to increase through 2031.
• Reducing tip credits. The tipped wage will gradually increase in proportion to the standard minimum wage until 2031, rising to 50% of the standard minimum hourly wage. 
• No mandatory tip pooling. Michigan allows employers to use tip pooling arrangements, but they cannot force employees to participate.

State law prohibits employers from intimidating employees into participating in a tip pool. It also prohibits discrimination or retaliation against an employee for refusing to participate in or withdrawing from a tip-pooling arrangement. This is a significant difference from federal law, which permits mandatory tip pooling arrangements.

For Michigan employees, participation in a tip pool is strictly voluntary. This is true even if you work for an employer based outside of Michigan, such as a franchised restaurant or hotel chain. An employer must obtain each worker’s full, free, and written consent to participate in a tip pooling system.

Each employee’s average hourly wage, including their pooled tip distributions, must equal or exceed Michigan’s standard minimum wage. Employers must keep detailed records of each employee’s contributions to and distributions from the shared tip pool.

Like the FLSA, Michigan law prohibits employers from keeping any portion of a tip pool or distributing tips to managers, owners, or supervisors. It makes the same distinction between traditional and non-traditional tip pools, allowing employers to include non-tipped workers in a tip pool only if it pays all participating employees at least the standard minimum hourly wage.

Gratuities and Service Charges

Federal and state laws treat mandatory gratuities and service charges differently from “tips.” Unlike tips, which belong to the employee who earns them, these charges are the business’s exclusive property. An employer that collects mandatory gratuities or service charges is generally free to distribute them as it wishes or keep them entirely. Some businesses include some or all of these charges in their tip pools, while others do not. This uncertainty can make it more difficult to determine whether a business is fully complying with tip pooling requirements.

How to Recover Unpaid Wages or Tips

Michigan employees may file complaints about employer tip pooling practices or improperly withheld wages with the Michigan Wage and Hour Division. The state can impose legal and financial penalties on employers for violating state wage laws, including improperly administering tip pooling arrangements.

Employees also have the right to pursue a civil lawsuit for the wrongful withholding of wages and other violations of Michigan and federal employment laws. If you suspect your employer is improperly calculating your pay or withholding wages, consult with an experienced attorney.

Contact Sommers Schwartz, P.C.

If you have questions about tip pool arrangements, unpaid wages, or other Michigan employment issues, contact Sommers Schwartz, P.C. Our experienced team of employment attorneys has decades of experience protecting Michigan workers’ rights and ensuring workers receive the pay they deserve. Contact us today to schedule a free, confidential, no-obligation consultation.