Navigating Colorado's Tip Laws: A Guide for Employers

Navigating Colorado's Tip Laws: A Guide for Employers
7shifts Staff

By 7shifts Staff

Colorado isn’t making life easy on restaurateurs. Tip laws differ from national standards in some areas, and staying on top of potential changes as bills make their way through the legislative process takes time and energy.

Restaurant owners can breathe a sigh of relief that the complex and potentially expensive “fair workweek bill” didn’t pass. But other changes are coming soon that will likely affect every restaurant and restaurant group operating in the state.

What is the minimum wage in Colorado?

The Colorado minimum wage can potentially change every January, based on cost of living increases (as measured by Colorado’s Consumer Price Index). For 2023, the state minimum wage is $13.65 per hour, but this number will change again on January 1, 2024.

The tipped minimum wage in Colorado is $10.63 per hour. So employers can claim a tip credit of $3.02 per hour—as long as the employee’s base wage and tips combine to equal at least the full minimum wage.

Employers need to be aware of the changing minimum wage in relation to tip laws: As the minimum wage changes, so do the specifics around when, whether, and how much of a tip credit the employer may take.

Who is considered a tipped worker?

The Colorado Overtime and Minimum Pay Standards Order (COMPS order) #38 defines who is considered a tipped worker in the state. In short, anyone who customarily and regularly receives more than $30 per month in tips is a tipped employee. This definition lines up with The U.S. Department of Labor’s Fair Labor Standards Act (FLSA).

Employers can pay tipped employees the tipped minimum wage for supporting non-tipped duties—but there are some stipulations. Those duties can’t last for more than 30 consecutive minutes and can’t add up to 20% or more of the employee’s total time in a workweek. The non-tipped duties must also “directly support” the tipped work. For servers at restaurants, refilling condiments and making coffee directly supports their tipped work; cleaning bathrooms and doing building maintenance does not.

What counts as a tip?

Money voluntarily left by a patron above the total of the bill and sales tax is a tip.

Tips belong to the employees they’re left for. Restaurants and managers don’t own and can’t keep their employees’ tips. They can, however, require tip pooling (defined as “sharing or allocating gratuities on a pre-established basis”). But they must notify customers in writing if they do so.

What about service charges and credit card processing fees?

Mandatory service charges (like what many restaurants add to the bills of large parties) aren’t considered tips under federal law. They are the property of the restaurant. But Colorado regulates these charges differently.

In Colorado, restaurants must clearly display a notice if these charges go to the restaurant or managers. Without a notice, the restaurant must disburse these charges to tipped employees.

The Colorado Restaurant Association offers several additional clarifications:

  • Any service charge money paid to a tipped employee does not count toward the tip credit.
  • Restaurants must collect sales tax on mandatory service charges because they are considered revenue.

While allowed under federal law, Colorado law prohibits restaurants from deducting credit card processing fees from tips.

Employees rights regarding tips

Employees have the right to keep their tips in Colorado. The only exception is when the employer mandates a valid tip pool arrangement, redistributing tips among all tipped employees.

Colorado is in the process of evaluating new legislation (COMPS Order #39) that would further expand employees’ rights regarding tips.

This legislation (if approved) changes the definition of a tipped employee from anyone making $30 per month in tips to anyone individually making $1.55 per hour in tips in a given workweek.

Attorneys Ariel Cudkowicz and Michael Steinberg explain:

“In accompanying commentary to the proposed rule, the Division notes that this hourly rate was derived from the estimated inflation-adjusted monthly equivalent of $30 in 2024 dollars—$187.32. Note also that the change means it will no longer be sufficient for an employer to show that an employee works in an occupation in which workers customarily and regularly receive tips—the new definition makes the inquiry individualized to the particular employee.”

The new language also limits tip pools to those who “perform significant customer-service functions in contact with patrons.” This hasn’t been fully defined, but it appears to be narrower in scope than the current guidelines, potentially eliminating bussers, runners, and barbacks from tip pools.

Can an employer keep tips in Colorado?

No, employers may not keep any portion of employee tips in Colorado. Both the FLSA and COMPS order #38 make this clear.

Employers can collect tips for redistribution (tip pooling) but may not keep any of this money or distribute it to managers, supervisors, restaurant owners, or non-tipped employees.

Common mistakes employers make in relation to tip laws

  • Garnishing or skimming tips: employers may never take any part of employee tips for themselves.
  • Paying out tips to managers or supervisors: even if they helped with tipped duties, managers cannot receive money from the tip pool.
  • Failing to notify consumers that a tip pool is in effect: Colorado law requires that restaurants in the state put a tip pool notice in writing.

Tip credits in Colorado

Colorado allows for a tip credit of $3.02 per hour. Employers can pay a tipped minimum wage of $3.02 less per hour than the standard minimum wage—as long as the combination of per-hour wages and tips adds up to the full state minimum wage.

Employers who use the tip credit have to make sure that all employees they pay the tipped minimum wage are earning at least the minimum wage after factoring in tips. If they come up short, the employer has to make up the difference. This is true whether a restaurant uses a tip pool or employees keep tips directly.

Restaurants that use mandatory tip pools and then share those tips with non-tipped workers (like BOH staff) can’t use tip credits.

What is the tipped minimum wage in Colorado?

The tipped minimum wage is the standard Colorado minimum wage minus the tip credit of $3.02. So, for as long as the Colorado minimum wage remains at $13.65 an hour, the tipped minimum wage in the state will be $10.63 an hour.

Tip pooling and tip sharing

Employers can require employees to contribute to a tip pool and share or allocate gratuities with others on a pre-established basis. Employers who choose to do so must notify patrons in writing.

Only those employees who customarily receive tips (bartenders, barbacks, servers, runners, bussers, and sometimes hosts) can participate in the tip pool. And since both state (C. R. S. 8-4-103(6)) and federal (FLSA) laws bar employers from taking tips, supervisors and managers can’t receive money from a tip-pooling arrangement.

Restaurants sometimes use tip pools to more fairly allocate tips among tipped employees. For example, lead servers and bartenders may be tipped consistently and generously, while other tipped personnel (service bartenders, food runners) may not.

A tip pool, where each person involved in tip-producing or tip-supporting work receives a predefined amount of the gratuities, can help ensure all employees are paid fairly.

But remember, if COMPS order #39 becomes law, the types of employees who may be in a valid tip pool will change.

7shifts makes tip pooling easier than ever, especially in states with complex laws like Colorado. With 7shifts, you can create as many pools as you need—in less time than you might expect.

Dual jobs

Many tipped employees do other non-tipped or tip-supporting work alongside their tipped duties. The FLSA calls these employees “dual job employees,” and there are legal restrictions and guidelines surrounding dual jobs.

Colorado doesn’t maintain separate policies here, so FLSA Fact Sheet #15A is the best resource for dual jobs and tipped employees for the state of Colorado.

Tipped employees can receive the tipped minimum wage for both tip-producing and tip-supporting work if these three conditions are met:

  • The employee makes at least full minimum wage after tips.
  • The employee doesn’t do non-tipped work for more than 30 consecutive minutes.
  • The employee doesn’t spend more than 20% of their workweek on non-tipped duties.

For example, a server regularly spends time rolling napkins, tending to the salad bar, and doing light prep work in the kitchen during slow times.

They never spend more than 20 minutes at a time on these duties and spend less than three hours of their 30-hour workweek engaged in this work. So, their employer can pay them the tipped minimum wage for all time worked—as long as they make the full minimum wage after accounting for tips.

During a slow week, the same server might not be needed to wait tables at all. They spend most of their shift—around four hours in total—doing non-tipped work. They also clock another three hours of non-tipped work elsewhere in their 30-hour workweek.

Whether they worked 30 minutes straight or not, the server spent more than 20% of their workweek on non-tipped duties. So, they must receive the full minimum wage for those hours spent on side work—not the tipped minimum wage.

Overtime pay for tipped employees

Colorado’s overtime rules for tipped employees match national standards. You can calculate this hourly wage by multiplying the full minimum wage by 1.5, then subtracting the tip credit.

Using 2023 numbers:

$13.65 x 1.5 = $20.48 (hourly minimum overtime rate)

$20.48 - $3.02 = $17.46 (hourly minimum tipped overtime rate)

Employer tips for staying compliant with tip laws

Violating tip laws means hefty fines and audit headaches, even if it was an accidental error. Tip errors also set you up to lose the respect and trust of your staff.

Follow these tips to help your restaurant stay compliant:

  • Carefully document hours worked and tips received.
  • Never distribute pooled tips to non-tipped employees, including supervisors and managers.
  • Stay up to date on potential legislative changes: The “fair workweek” bill was killed in committee, but COMPS Order #39 is still under active debate.
  • Automate tip pooling and reporting using a tool like 7shifts.

Additional resources for Colorado restaurateurs

Check out these extra resources and information sources to continue learning about tip laws and labor laws affecting Colorado restaurants.

Reinventing the way restaurant teams work

Simple to set up, easy to use. Give your restaurant the team management tools they need to be successful. Start your free trial today.

Start free trial

No credit card required
7shifts Staff
7shifts Staff

7shifts team of writers and experts in the hospitality industry.