Louisiana Tip Laws: Your Guide to Compliance and Fair Labor

 

In Louisiana, there are no separate state tip laws; federal tip regulations under the Fair Labor Standards Act (FLSA) apply across the board. It’s important to master the rules so you can pay your team fairly and shield your business from penalties. When you stay compliant, you protect your bottom line and build your staff’s trust.

What counts as a tip in Louisiana?

A tip is something a customer gives freely. They choose how much to leave and who gets it. It’s voluntary and belongs to the employee. Under federal labor standards, this money is classified as employee income, and employers must report it correctly for tax purposes. These tips are subject to FICA taxes and can be included in tip pooling, as long as you follow certain regulations or limits.

On the other hand, a service charge is not considered a tip. If your restaurant adds a fixed amount, like a “kitchen appreciation” fee or an automatic 20% for large tables, that’s considered business revenue by the IRS.

Even if you give that money to the staff, it must be treated as regular wages, not employees’ tips. That means you have to withhold taxes differently and include them in overtime calculations.

Who qualifies as a tipped employee?

Under federal labor standards, a tipped employee is someone who “customarily and regularly” earns at least $30 in tips each month. If an employee doesn’t meet that threshold, you can’t treat them as tipped, even if they sometimes receive tips. In that case, you must pay them the full federal minimum wage of $7.25 per hour, and the tip credit of $2.13 per hour doesn’t apply.

Some job roles clearly qualify. Waitstaff, bussers, and service bartenders almost always meet the $30 rule. They regularly receive tips and are usually included in a valid tip pool or tip pooling setup.

Other roles are trickier. Hosts, food runners, and kitchen staff may or may not get enough tips to qualify. That’s why it’s important to track individual tip earnings using dedicated tip management software.

Minimum wage landscape

The current Louisiana minimum wage is $7.25 per hour, similar to the federal rate. For tipped employees, you can pay a cash wage of $2.13 per hour as long as their tips make up the difference to reach $7.25. If their tips fall short, you’re required by law to cover the gap.

Aside from following federal tip laws, there’s also no state labor department handling wage complaints. All issues go straight to the U.S. Department of Labor. That means there’s no state-level review or early warning before a case turns into a full federal investigation or even a lawsuit.

Because of this, the compliance risks are higher in Louisiana. You don’t get a second chance or a local agency to help fix things before they become serious.

The best way to protect your business is to follow the FLSA rules closely and document everything, from wages and hours to tip tracking and employee notices.

Tip pools and ownership rules

According to Louisiana’s restaurant tip pooling laws, tip pools are legal, but the rules depend on whether you take the tip credit. If you’re using the credit, only customarily tipped employees can share tips. This includes servers, bussers, and service bartenders.

You can’t include kitchen staff, dishwashers, or any managers or supervisors. Letting the wrong person into the pool is a direct violation of federal labor standards.

If you don’t take the tip credit and pay everyone at least $7.25 per hour, you have more flexibility. In this case, you’re allowed to include BOH staff, like cooks and dishwashers, in the tip pooling arrangement.

No matter which method you use, you must explain the tip pool clearly in writing to your staff. You should also pay employees’ tips in full by payday. Moreover, as the employer, you can’t keep any portion of the tips for yourself or the business.

Managers and supervisors are never allowed to take tips from a pool. The only exception is if they receive a direct tip from a customer for a service they personally provided, and even then, it must be outside the pool.

Credit card tips and processing fees

If your staff receives tips by credit card, you’re allowed to deduct a small amount to cover credit card processing fees. However, there are limits.

You can only deduct the exact percentage fee charged by your credit card processor. For example, if the fee is 2.9%, you can take 2.9% from that employee’s credit card tip.

You can’t charge a flat fee or take more than the actual cost. Doing so breaks federal tip regulations and could cost you in back pay and penalties.

Even after the deduction, the employee’s total earnings (cash wage plus tips) must still equal at least $7.25 per hour. If it falls below that, you’re required to make up the difference.

Overtime pay rules for tipped employees

When your tipped employees work more than 40 hours in a week, you must pay them overtime, which is calculated at 1.5x the regular rate of pay. This includes both the cash wage and the tip credit.

If you’re paying the minimum of $7.25 per hour, that makes the overtime rate $10.88 per hour. You can still apply for the tip credit, but you must pay at least half the regular rate in cash, plus apply for the full tip credit.

Let’s say one of your tipped employees works 50 hours in one week. For the first 40 hours, their regular rate is $7.25 per hour, which totals $290. For the 10 overtime hours, federal law says you must pay them $10.88 per hour, which adds another $108.80. So, the total amount they’ve earned that week is $398.80.

As the employer, you can still apply for the tip credit, but you must calculate it correctly. In this example, you might end up paying $142.70 in cash wages, with the rest made up through tips the employee earned, with the rest ($256) made up through tips the employee earned.

Always track hours, tips, and rates accurately. Your restaurant payroll system should already do this for you, but you need to know the law to make sure it’s set up right.

Tax and reporting responsibilities

As an employer, you have specific tax duties when it comes to your tipped employees. First, you must withhold income taxes and FICA taxes (Social Security and Medicare) from the tips your employees report. You’re also responsible for paying the employer’s share of Social Security and Medicare taxes on those tips.

Next, you need to report all tips on your employees’ W-2 forms. That includes putting the correct amounts in Box 1 (wages, tips, other compensation), Box 5 (Medicare wages and tips), and Box 7 (Social Security tips). These boxes help the IRS track both employee income and your business’s compliance.

Stay careful and compliant

Compliance with Louisiana’s tip laws, which are the same as federal rules, may seem straightforward. In reality, though, the stakes may actually be higher. With no state agency to act as a buffer, even small mistakes can escalate into federal complaints or lawsuits. That’s why tracking hours and tips correctly is your first line of defense against costly penalties.

Use restaurant management software like 7shifts to manage tips, shifts, and payroll in one place. It integrates with your POS system to automatically track how much each employee should be paid. By automating the details, you’ll save hours every week and avoid the headaches that come with handling admin work manually.