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Tapping your card on the tablet and choosing a tip percentage feels like a direct reward to your server for their work. Yet in many restaurants (and increasingly in airport concessions and delivery apps), your tip is quietly subsidizing the employer’s labor costs instead of landing in workers’ pockets.
By exploiting tip-credit rules, mandatory tip pools, and a tangle of “service” surcharges, operators can legally pay sub-minimum wages or even use your tips to replace money they were already obligated to spend.
Understanding the fine print on that tablet screen can help you decide when—and how—to tip.
Key Takeaways
- Under federal law, in some states restaurants can use tips to servers to pay up to $5.12 of the $7.25 an hour minimum wage they must pay the servers, meaning some of your tip can go to paying the servers’ minimum wage.
- “Employee benefits,” “kitchen equity,” or “operations” fees often flow straight to the employer—not to staff.
- Regulators have clawed back billions for workers; DoorDash alone has paid over $19.25 million in two settlements for using tips to offset pay guarantees.
When Employers Can Pay $2.13 an Hour
Under the Fair Labor Standards Act (FLSA), employers in some states may claim a “tip credit”—that is, they can use tips to pay up to $5.12 of the $7.25 federal minimum wage they are required to pay servers—as long as tips do in fact bridge the gap. That means employers would pay only $2.13 of that minimum wage, while your tip could be making up the difference. If nightly sales are slow, the employer must top up the shortfall, but enforcement is weak and record-keeping opaque.
Many states have higher standards (e.g., California bans the credit entirely), yet 16 jurisdictions still allow the $2.13 floor.
Critics argue that the system shifts the basic cost of labor onto diners while masking wage volatility for workers. The Department of Labor flags food service as a “high-violation” industry. In fiscal 2024 its Wage and Hour Division recovered millions in back wages from restaurants alone, part of $273 million recovered across all sectors.
Tip
Airport eateries can be the worst culprits. New York’s Port Authority lets concessionaires reduce the $19.75 airport minimum wage by the amount workers earn in tips. At JFK, food services provider HMS Host adds a 3% “employee benefits & retention” fee, then suggests gratuity percentages on the inflated post-fee total—effectively asking patrons to finance staff benefits and, essentially, to lower servers’ base pay.
Mandatory Tip Pools and “Service” Charges
Tip pooling can help promote fairness—sharing with bussers, dishwashers, or even chefs who enable good service—but it also opens the door to more employer abuse. California permits tip pools but prohibits owners and managers from tapping it. It further distinguishes voluntary tips (employees’ property) from compulsory service charges (employer’s property).
Around the country, restaurants blur that line with “kitchen equity” fees or blanket 20% “service” charges. Because such sums are not legally tips, management may allocate them however it likes, sometimes substituting them for raises or staffing costs. Diners, seeing the added line, often don’t tip on top, unaware that the first charge might never reach their server.
These practices can also disguise credit card processing fees. Federal rules forbid deducting those fees from tips, so some operators reroute the money by labeling it a non-tip surcharge, leaving customers none the wiser.
Delivery Apps: A Cautionary Parallel
The restaurant loophole also exists online. DoorDash’s previous pay model used customer tips to cover the company’s guaranteed payout. Drivers saw their base pay fall dollar-for-dollar until the tip exceeded the guarantee. The District of Columbia forced a $2.5 million settlement in 2020, and in 2025 New York secured $16.75 million more, finding that more than 60,000 Dashers had effectively subsidized their own wages with customer tips.
Lawmakers are taking note. The proposed “Don’t STEAL Act” would make wage theft—including tip skimming—a felony, underscoring how common and costly the practice has become (an estimated $50+ billion annually).
Bottom Line
Tipping is meant to reward service, not to underwrite payroll. Yet opaque rules, pooled-tip deductions, and ever-multiplying surcharges let restaurants and platforms shift labor costs onto customers while keeping menu prices deceptively low. If a “service fee” or benefits surcharge appears, ask staff whether it counts as a tip before adding more. To make sure your tip goes where you intend, mind the fine print until the laws change or businesses adopt no-tipping, service-included pricing.
