Arkansas Tip Laws for Employers in 2025

 

Tipping rules aren’t always easy to follow, especially when you’re managing a busy shift and wearing three hats. It’s the same in Arkansas, where you have to keep track of state wage laws, tip credits, and who’s doing what kind of work. Fortunately, the 80/20 rule has been overturned by the federal court. Otherwise, you still need to track exactly how much time tipped workers spend on tasks that don’t produce tips.

What counts as a tip in Arkansas?

In Arkansas, not everything that looks like a tip is legally a tip. A tip is money a guest gives on their own. It’s up to them how much to give and who gets it. That means it’s not set by the restaurant, and it’s never automatic.

On the other hand, a service charge is a fixed amount added to the bill by the business, like a 20% charge on large parties. Even if it feels like a tip, legally, a service charge belongs to the restaurant, not the employee.

This matters because only real tips count toward a worker’s tipped minimum wage. If you treat a service charge like a tip and use it to calculate tip credit, you could end up underpaying your team and violating state and federal law.

Arkansas uses four main rules to decide if money counts as a legal tip:

1. The payment must be voluntary.
2. The customer gets to choose the amount.
3. The customer decides who receives it.
4. It’s not controlled by restaurant policy or added automatically.

If all four are true, it’s a tip, and can count toward the wage tip calculation for tipped employees. If not, it’s likely a service charge.

Who owns the tip?

Under Arkansas law, employee tips belong 100% to the employee who earned them. Owners, managers, and supervisors aren’t allowed to keep or share in tips. You also can’t take a cut to cover business expenses like broken dishes, walkouts, or credit card processing fees, unless the employee still ends up with at least the minimum cash wage.

Tips can be shared through a tip pool, but only if it follows Arkansas’ restaurant tip pooling laws. For example, if an employer takes a tip credit, the tip pool can only include employees who customarily and regularly receive tips.

Who qualifies as a tipped employee in Arkansas?

Tipped employees are workers who do tip-producing work, meaning their main job duties involve direct service that leads to guests leaving tips. Their tasks must be work that’s part of the customer experience, like taking orders, serving food, mixing drinks, or handling payments.

Tipped employees, like servers, bartenders, and bussers, can earn a cash wage of $2.63 per hour, as long as the wage tip credit covers the rest to meet the state minimum wage.

Not all tasks done by tipped workers count as tip-producing work. For example, cleaning bathrooms and preparing food in the kitchen are considered non-tipped work.

What qualifies as “supporting work”

Supporting work includes tasks that help with tip-producing work but don’t directly earn employee tips. Common examples include brewing coffee before the shift, rolling silverware, refilling napkin holders, and wiping down service stations. If they’re done alongside regular tipped duties, these are fine to include under the cash wage of $2.63.

You can use a tip credit for supporting work if it’s tied to the employee’s main tipped role and it’s done during or right before or after a tipped shift. It also shouldn’t take up a major portion of their time. You can’t use the tip credit if the side work becomes the employee’s main duty and has no link to direct guest service.

Arkansas’ 80/20 rule

In 2024, a federal court ruling threw out the stricter 80/20 rule for tipped workers. That rule stipulated that if someone spent more than 20% of their time doing non-tipped tasks, they had to be paid the full minimum cash wage.

Restaurants no longer have to track exact percentages of tipped work vs. side work. That means less paperwork for operators. However, don’t ignore the intent. If someone spends too much time doing tasks that don’t earn tips, you can’t pay the tipped minimum or claim a wage tip credit for those hours.

Tip credits and the Arkansas minimum wage

The Arkansas minimum wage is $11 per hour, but employers can pay a lower rate of $2.63 per hour. However, it’s important that tips make up the rest and bump their pay to meet the state minimum, and that the employee is doing tip-producing work.

For an employee who worked four hours, the calculation will be:

$10.52 (wage) + $33.48 (tips) = $44 (total pay)

That $33.48 must come from tips received by the employee, either directly or through a valid tip pool.

What happens if tips don’t add up?

If an employee’s tips fall short, say it’s a slow shift or a slow week, employers are legally required to make up the gap. So, if an employee just gets a total of $24 in tips after four hours of work, you’ll have to increase their wages from $2.63 per hour or $10.52 for four hours to $5 per hour or $20 for four hours:

$20 (wage) + $24 (tips) = $44 (total pay)

This way, the employee receives the full minimum wage.

How tip pooling works in Arkansas

Tip pools can be mandatory (set by the employer) or voluntary (set by employees). If you’re using a tip credit to pay below the state minimum cash wage of $11, your pool must follow federal and state rules carefully. For mandatory pools, you’re responsible for making sure tipped employees are getting their fair share.

Voluntary pools give employees more say, but you still need to make sure the pool only includes people doing tip-producing work.

Who can be included in a tip pool?

If you’re paying staff the tipped minimum of $2.63 an hour and using a wage tip credit, only tipped workers in the FOH, like servers, bussers, and bartenders, can be part of the tip pool.

Managers, owners, and supervisors can’t take any part of the employee tips, even if they help on the floor or work side-by-side with staff. The same goes for BOH staff, unless you’re paying everyone the full cash wage (no tip credit used). If that’s the case, the rules are more flexible, but you still have to clearly document everything.

Notification and distribution rules

If you run a tip pool, your employees must be told in advance how it works. That includes who’s included in the pool, how tips are divided, and when payouts happen.

It’s your job to make the process fair and transparent. Use dedicated restaurant tip management software to stay organized. A good tool can automate calculations, distribution, and taxation to make your life easier, while making sure each employee gets their correct share.

Overtime pay for tipped employees

Regardless of whether an employee is considered a tipped worker, they’re still entitled to overtime pay if they work more than 40 hours in a week. Plus, the rate must be based on the full minimum wage, not the cash wage of $2.63 per hour. You can still use the tip credit, but you need to be careful with the calculation.

So, since the regular rate is $11 per hour, the overtime rate would be $16.50 per hour (1.5 x $11). Let’s say a server works 45 hours in a week. That’s 40 regular hours and 5 overtime hours.

To break it down:

• 40 regular hours × $2.63 = $105.20 (cash wage)
• 5 overtime hours × $2.63 = $13.15 (cash wage)
• 5 overtime hours × $13.87 = $69.35 (additional tip credit to bring total to $16.50 per hour)

That’s a total of $187.70 in wages. It’s a bit complicated, so it’s best to use restaurant payroll software that lets you set the criteria and automatically calculates overtime for tipped employees. Leveraging tools can help you stay compliant and reduce the risk of manual errors.

Credit card tips and service charges

When customers pay with cards, the line between tips, fees, and wages can get confusing. But for tipped employees, it’s important you handle digital tip payouts and service charges the right way.

Credit card tips still count as employee tips. These must be reported by the employee, included in payroll records, and taxed just like cash tips. Employers are responsible for tracking and reporting all tips correctly, even if they come through a card reader or straight from a guest’s wallet.

Can employers deduct processing fees?

Arkansas doesn’t have a law in place prohibiting deducting credit card processing fees from tips. However, employees must still make at least minimum wage after the deduction.

For example, if a guest tips $10 on a credit card and your processing fee is 3%, you can legally withhold $0.30 from that tip. But if subtracting that fee causes a worker’s total pay to drop below the state minimum wage, it’s now a problem. Always do the math before making any deductions.

Service charges are not tips

A service charge is not a tip, even if it’s added automatically to the bill. That means it belongs to the restaurant, not the employee. If you want to share service charge money with staff, you must treat it as wages, not tips.

This also means service charges can’t be included in a tip pool and must be counted in payroll and taxed as regular wages. To avoid confusion, label these charges clearly on guest checks and train your team on how they’re handled.

Tip reporting, payroll, and recordkeeping requirements

Restaurant owners in Arkansas must follow strict rules for tip reporting, payroll, and how long they must keep records. This helps protect both you and your tipped employees if questions ever come up about wages.

As an employer, you must track:

• All cash and credit card tips reported by employees
• Hours worked (including tip-producing work, overtime, and dual jobs)
• Cash wages paid and any tip credit taken
• Tip pool distributions, if applicable

You also need to show that tipped workers always earn at least the full minimum wage after tips are counted.

How long to keep records

The law says you must keep wage and hour records, including employee tips, for at least three years. This includes payroll records, tip reports, timecards, and any agreements about tip pools or shared tips. If there’s ever an audit or a complaint, this documentation will be your best defense.

When tips must be paid out (especially credit card tips)

Tips, including credit card tips, must be paid out in the regular payroll cycle, just like wages. You can’t delay paying tips to wait for the next pay period. If you deduct a credit card processing fee, that deduction must be reflected right away, and the employee must still earn at least the tipped minimum for that pay period.

Make tips one less thing to worry about

There’s a lot to manage when it comes to tip laws, but the cost of getting it wrong is high. Back pay, legal risk, and employee turnover can hit hard if you’re not careful. The good news is that you don’t need to memorize every rule. You just need systems that help you stay on top of them.

Never leave tip distribution up to chance. Use 7shifts’ tip pooling software to take the guesswork out of tip sharing and protect your business. It automates calculations, so you spend less time on manual administrative tasks, while staying compliant and avoiding payroll mistakes.

From setting up rules to tracking real-time payouts, 7shifts handles the hard parts for you.