Tip Credit Rules in Tennessee: Tipped Worker Pay Rights

The Fair Labor Standards Act (FLSA), specifically 29 U.S.C. § 203(m) and 29 U.S.C. § 206(a), establishes the federal tip credit framework. Under this law, employers may take a tip credit and pay tipped employees a minimum of $2.13 per hour instead of the $7.25 federal minimum wage, provided that the employee's tips make up the difference and the employee earns at least $7.25 per hour when tips are combined with wages.

The FLSA defines a tipped employee as one who customarily and regularly receives more than $30 per month in tips from customers. Employers are covered if they have at least two employees and annual revenues of at least $500,000, though most restaurant, hotel, and hospitality employers meet this threshold. The law is enforced by the U.S. Department of Labor (DOL) Wage and Hour Division.

Federal law imposes several conditions on tip credit use: (1) the employer must notify the employee of the tip credit policy before tips are earned; (2) the employee must be allowed to keep all tips received, except for valid tip pools among employees who regularly receive tips; (3) the employer cannot deduct tips for breakage, cash register shortages, or other business losses; (4) if an employee's tips do not bring total earnings to the minimum wage, the employer must pay the difference; and (5) the employee must spend at least 80% of working time in tip-producing activities.

Remedies for tip credit violations include back wages, liquidated damages (equal to the amount of unpaid wages), and attorney fees. The FLSA does not cap damages and applies to all private employers covered by the statute.

Tennessee has no separate state tip credit law and instead defaults to the federal Fair Labor Standards Act (FLSA) under Tennessee Code Annotated § 50-2-103, which provides that Tennessee employees are entitled to the federal minimum wage of $7.25 per hour. This means Tennessee employers follow federal tip credit rules exactly as written in 29 U.S.C. § 203(m).

Tennessee law is neither stronger nor weaker than federal law on tip credits—it is identical. The state does not impose additional protections for tipped employees beyond what federal law requires. However, because Tennessee defers to federal law, any federal regulations and Department of Labor guidance regarding tip credits apply directly in Tennessee.

Tennessee employers covered by the FLSA (those with two or more employees and annual revenues of at least $500,000) may use the tip credit. This includes most restaurants, bars, hotels, casinos, and other hospitality businesses in the state. Independent contractors and sole proprietorships are generally not covered. Nonprofit organizations and government employers may have different rules under federal law.

There are no unique Tennessee-specific protections for tipped employees beyond the federal framework. An employee in Tennessee has no greater right to keep tips, prevent tip pooling, or challenge a tip credit than an employee in any other state following federal law. Remedies available are those provided by the FLSA: back wages, liquidated damages (double the unpaid wages), attorney fees, and court costs. Claims must be filed within three years for willful violations or two years for non-willful violations under the FLSA statute of limitations.

Employer must pay tipped employees a minimum base wage of $2.13 per hour in Tennessee.

Combined wages and tips must equal or exceed $7.25 per hour (federal minimum wage).

Employee must customarily and regularly receive more than $30 per month in tips to qualify for tip credit.

Employee must spend at least 80% of work time in tip-producing activities to be classified as a tipped employee.

You have 180 days to file a wage claim with the U.S. Department of Labor Wage and Hour Division (or 300 days in some cases under state deferral rules).

Unpaid wages claims under FLSA have a statute of limitations of 2 years for non-willful violations and 3 years for willful violations.

The tip credit does not apply to employees who do not customarily and regularly receive more than $30 per month in tips. If an employee rarely receives tips or is not in a tip-producing position, the employer must pay full minimum wage ($7.25/hour) even if tips are occasionally earned.

Employers cannot take a tip credit if the employee spends less than 80% of working time in tip-producing activities. If an employee spends significant time cleaning, stocking, or performing non-tipped duties, the employer must pay full minimum wage for those hours. For example, if a restaurant server also spends 30% of the shift cleaning dishes, the employer must pay minimum wage for that portion of the shift.

Tip pooling among tipped employees (servers, bartenders, busses who regularly receive tips) is permitted under federal law. However, employers cannot require non-tipped employees (cooks, dishwashers, managers) to participate in tip pools or require tipped employees to share tips with non-tipped staff. Any tip pooling arrangement must be disclosed to employees before tips are earned.

Employers cannot use tip credit to offset other deductions such as uniforms, cash register shortages, customer walkouts, or breakage. These deductions must be paid by the employer directly and cannot reduce an employee's base wage below the minimum required by law.

The tip credit does not apply to employees paid on commission, salary, or any arrangement other than hourly wages. Additionally, if an employer provides tips through a tip-sharing app or electronic payment system, the same rules apply—the employer still must ensure total compensation reaches minimum wage.

At-will employment rules apply in Tennessee, but an employer cannot terminate an employee for refusing to participate in an invalid tip pool or for complaining about tip credit violations. Retaliation for reporting wage violations is prohibited under the FLSA.

Step 1: Document Everything. Keep detailed records of all shifts worked, including start and end times, hours worked, and actual tips received each day. If you work through a point-of-sale (POS) system, take screenshots showing tip amounts and when they were credited. Save text messages, emails, or written communications from your employer about tip policies. Write down the date and specific details of any incident when your employer violated tip credit rules (e.g., taking an illegal deduction, failing to pay the difference if tips were short, or requiring participation in an invalid tip pool). Use a notebook, Google Drive document, or secure email to yourself to create a timestamped record.

Step 2: Raise the Issue Internally. Before filing a formal complaint, notify your employer of the violation in writing. Send an email or give a letter to your manager or HR department describing the specific violation and what you believe is owed (e.g., "On June 15, I worked 8 hours and earned only $50 in tips. You paid me only $2.13/hour base wage without paying the difference to reach $7.25/hour, resulting in an underpayment of $18.96"). Keep a copy for yourself. Document any response or lack of response. This internal step creates a paper trail and gives the employer an opportunity to correct the error. Many violations are resolved at this stage. Request a response within 7-10 days.

Step 3: File a Wage Complaint with the U.S. Department of Labor. If the employer does not resolve the issue, file a complaint with the DOL Wage and Hour Division (WHD). Tennessee is not a deferral state, so you file directly with federal DOL. Visit www.dol.gov/agencies/whd/faq/contact-us or call 1-866-4-USWAGE (1-866-487-9243). You can also contact the Nashville office of the DOL Wage and Hour Division at (615) 736-5904. You have 180 days from the violation date to file (or longer if the violations are willful). When filing, provide: your name, address, and phone number; your employer's name, address, and phone number; dates of violations; specific description of what happened (e.g., employer paid $2.13/hour without ensuring tips brought total to $7.25/hour); copies of pay stubs or any written tip credit policy; and documentation of tips received and wages paid for relevant pay periods. The complaint can be filed online, by mail, or in person at a local DOL office.

Step 4: Understand the Investigation Process. After filing, the DOL Wage and Hour Division will conduct an investigation. An investigator will contact your employer and request payroll records, POS system data, employee files, and any written tip credit policies. The investigator will also interview you and potentially other employees. The process typically takes 30-90 days, though complex cases may take longer. You are not required to pay any fees or hire an attorney for the DOL to investigate. The investigator will determine whether a violation occurred and calculate back wages owed, including liquidated damages (equal to the unpaid wages). If the investigator finds a violation, they will attempt to reach a settlement with the employer. If the employer refuses to pay, the DOL may refer the case to the Department of Justice for civil litigation.

Step 5: Consult an Employment Attorney When Appropriate. If the amount owed is substantial (typically $1,000 or more), if your employer retaliates against you, or if the DOL investigation stalls, consult a wage and hour attorney. Many employment lawyers work on contingency, meaning they take a percentage of your recovery rather than an upfront fee. An attorney can file a private lawsuit under the FLSA in federal district court, which allows you to recover unpaid wages, liquidated damages, attorney fees, and court costs. In Tennessee, file in the U.S. District Court for the Middle, Eastern, or Western District of Tennessee depending on where you work. Look for attorneys with experience in tip credit cases through the National Employment Lawyers Association (NELA) at www.nela.org or contact the Tennessee Justice Center (615-322-5757) for referrals.