Tip Credit Rules in Wisconsin: Tipped Worker Pay Rights

The Fair Labor Standards Act (FLSA), 29 U.S.C. section 203(m), permits employers to claim a tip credit against the federal minimum wage of $7.25 per hour. The FLSA allows employers to pay a base wage as low as $2.13 per hour if employees earn tips that, when combined with the base wage, equal or exceed $7.25 per hour. The tip credit amount is therefore $5.12 federally ($7.25 - $2.13). However, if an employee's tips do not bring their total compensation to the federal minimum wage, the employer must pay the difference in cash wages.

The FLSA covers most employers with at least one employee engaged in interstate commerce, though small employers with gross annual sales of $500,000 or less may be exempt. The statute requires that employers must inform employees that they are using the tip credit before or at the time the credit is claimed. Employees retain all tips they earn; employers cannot use tips for any purpose other than to satisfy the tip credit or to split tips among employees in tip pools. Violations are enforced by the U.S. Department of Labor Wage and Hour Division. Remedies include back wages, liquidated damages (an equal amount), and potentially civil penalties for willful violations.

Wisconsin Statutes section 104.12(2) establishes Wisconsin's tip credit framework, which is stronger than federal law in one critical way: Wisconsin's minimum wage is $7.25 per hour (matching federal), but Wisconsin allows only a $5.15 tip credit, meaning employers can pay tipped employees a base wage of $2.33 per hour. This is 20 cents higher than the federal base wage of $2.13 per hour, providing modestly better protection to Wisconsin tipped workers.

Under section 104.12(2), an employer may credit tips toward the minimum wage only if: (1) the employee is primarily engaged in an occupation in which tipping is customary (such as waitstaff, bartenders, bellhops, or valets); (2) the employer informs the employee in writing before or at the time the tip credit is claimed; (3) the employee is allowed to keep all tips received; and (4) the employee's tips, when combined with the base wage, equal or exceed the state minimum wage of $7.25 per hour.

Wisconsin's tip credit applies to all employers covered by state wage and hour law, which includes any employer with one or more employees. This is broader coverage than some states that exempt small employers. If an employee's tips do not bring total compensation to $7.25 per hour in any workweek, the employer must pay the difference in additional cash wages. Employers cannot deduct credit card fees or other costs from employee tips, and cannot require employees to share tips with non-tipped staff unless part of a lawful tip pool. Wisconsin Department of Safety and Professional Services enforces these rules. Remedies for tip credit violations include recovery of unpaid wages, possible penalties, and potential damages under Wisconsin's wage payment statute.

Wisconsin's tip credit has several important limits and exceptions. First, the tip credit applies only to employees primarily engaged in occupations in which tipping is customary. Employers cannot claim a tip credit for employees in occupations where tipping is not customary, such as fast-food counter workers (even if they receive tips), retail cashiers, or janitorial staff. If an employee spends significant time performing non-tipped duties (such as cleaning or food preparation work), the employer may be able to claim the tip credit only for the portion of time spent on tipped duties.

Second, tips are the sole property of the employee. Employers cannot use tips to subsidize wages for non-tipped employees, cannot deduct credit card processing fees or other business costs from tips, and cannot confiscate tips as a penalty for poor performance. Third, Wisconsin law does not explicitly authorize tip pooling or tipping-out arrangements, though common industry practice in some establishments includes pooling tips among servers and bartenders. Any tip pooling arrangement must respect the rule that only tips earned by the employee can be counted toward the tip credit; tips contributed to a pool by other employees cannot be credited.

Third, if tips do not reach the minimum wage in any workweek, this is not excused by the employee's poor sales or the restaurant's low traffic. The employer's obligation to pay the difference is strict. Fourth, employers cannot require employees to accept the tip credit as a condition of employment if the employee would earn more by working at regular minimum wage without tips (though this is rare in practice). Finally, the written notice requirement is mandatory; employers who fail to provide written notice of the tip credit before claiming it lose the right to use the credit and must pay at least minimum wage for all hours worked.

Step 1: Document Everything. Keep detailed records of your scheduled shifts, actual hours worked, tips earned (from credit card receipts, cash register reports, or personal logs), and any written communications from your employer about wages or the tip credit. Retain pay stubs, email exchanges, text messages, and any written notice about the tip credit policy. Note the dates your employer claimed the tip credit and the base wages paid. Calculate whether your tips plus base wages equaled at least $7.25 per hour each week.

Step 2: Raise the Issue Internally. Request a written meeting or email your manager or owner describing the problem. For example: "I want to clarify my tip credit arrangement. My base wage is $[X] and my tips averaged $[Y] per week. Please confirm this meets the $7.25 minimum wage requirement." Ask your employer to provide written records of your tips and wages. Document the employer's response. If the employer admits the shortfall or provides records showing a wage violation, request immediate payment of back wages. Ask for the written tip credit notice if you never received one; the absence of this notice is itself a violation.

Step 3: File a Wage Claim. If the internal process fails or the employer denies the problem, file a wage claim with the Wisconsin Department of Safety and Professional Services (DSPS), Division of Safety and Buildings, Wage and Hour Section. Visit: https://dsps.wi.gov/industry/safety-and-buildings/wage-and-hour-laws/. Call (608) 266-2112. You can also file a private civil action in Wisconsin circuit court. There is no strict statutory deadline to file a wage claim, but delays weaken your case; file within one year if possible. Include your name, contact information, employer name and address, dates of employment, description of the tip credit arrangement, calculation of alleged underpayment, and copies of pay stubs, receipts, or other evidence.

Step 4: Investigation and Resolution. The DSPS Wage and Hour Section will contact your employer and request records of wages paid, tips recorded, and any written tip credit notice. The agency will investigate whether the tip credit was properly authorized and whether tips plus wages met the minimum wage. This process typically takes 2–4 months. If the agency finds a violation, it will issue an order requiring the employer to pay back wages. Many cases settle during investigation. If the case does not settle, the DSPS may refer it to the Wisconsin Department of Justice for enforcement.

Step 5: Legal Representation. If the wage claim exceeds $500 or involves multiple violations, consult an employment attorney who handles wage claims in Wisconsin. An attorney can file a civil action in circuit court, which may allow recovery of liquidated damages (double the back wages), attorney fees, and costs. Contact the State Bar of Wisconsin Lawyer Referral Service at (800) 362-9082 or visit www.wisbar.org. Choose an attorney with experience in wage and hour disputes, not general practice lawyers.