Maryland Tip Laws: An Employer’s Guide to Compliance and Fair Labor

 

With a high cost of living and a sizable gap between tipped and full minimum wage, Maryland renders its service workers heavily dependent on tips for income. To protect your employees, it’s important to develop a deep understanding of federal and state tip laws, including rules for tip ownership, credits, pooling, and reporting. Memorizing employer obligations can help you boost employee satisfaction, avoid legal issues, and maintain a fair and transparent workplace.

What is a “tip” in Maryland?

Maryland follows the Fair Labor Standards Act (FLSA)’s definition of a tip, which states it as a voluntary payment a customer presents to an employee, typically in the service industry, independently of any charges the employer imposes.

To legally count as a tip, a payment must:

• Come from the customer voluntarily, free of employer control
• Go directly to the employee from a customer or a valid tip pool

 

Tips are properties of the employees who receive them. Maryland law prohibits employers from keeping, withholding, or controlling tips. They may only handle tips to collect and distribute them under a valid and agreed-upon tip pooling system.

What is the difference between a tip and a service charge?

Although both tips and service charges are extraneous payments customers add to the advertised cost of a product or service, they are legally distinct terms under Maryland law. A tip is a voluntary payment the customer grants an employee outside of employer control, while a service charge is a mandatory fee an employer adds to a customer’s bill.

Tips belong to the employee, while service charges belong to the employer, who may distribute the income however they please.

Who qualifies as a tipped employee in Maryland?

In theory, any employee can receive tips. However, only certain employees qualify as tipped employees. Understanding this distinction is important because the classification of tipped employees determines eligibility for tip credits and tip pooling.

Maryland follows the FLSA’s criteria for tipped workers, which dictate that a tipped employee must regularly and customarily earn at least $30 per month in tips. This means that they work in an occupation that, due to cultural expectations, frequently offers opportunities for tips.

Examples of tipped employees include:

• Servers
• Bartenders
• Baristas
• Hosts
• Food runners
• Bussers
• Hair stylists
• Nail technicians
• Bellhops
• Vallets

Minimum wage and tip credits in Maryland

At $15 per hour, the minimum wage in Maryland is among the highest in the country. However, the state allows employers to claim up to $11.37 per hour in tip credit, reducing tipped base wages to just $3.63 per hour. This means that many employees rely on tips for over half of their income. If an employee cannot raise their total earnings (base wages plus tips) to the full minimum wage, the employer must pay the difference.

Overtime rate

Maryland law requires employers to pay employees 1.5 times their regular hourly rate for all hours worked beyond 40 hours in one workweek. If an employee is a tipped employee, the employer must calculate their overtime rate based on the full minimum wage. This means that the overtime rate for minimum wage employees is $22.50.

Employers can still apply the tip credit to overtime hours, but the tipped minimum wage stays at $3.63. This means that when employees work overtime, their total earnings (wages plus tips) need to reach the overtime rate of $22.50 per hour. If tips don’t cover the difference, it is the employer’s responsibility to cover the deficit.

Maryland tip credit rules

Because there is such a big gap between the full and tipped minimum wage rates, Maryland enforces multiple protections for tipped workers. These rules help ensure livable wages for all employees by dictating who can be paid the lower tipped wage, what employers must do if tips don’t make up the difference, and other responsibilities employers need to follow to ensure fair pay.

Tipped workers

In Maryland, employers may only claim the tip credit from tipped workers. This rule prevents employers from reducing the base wages of employees with few opportunities to supplement their income with tips.

Tip credit wage statements (restaurant owners only)

Under Maryland law, employers (particularly restaurant owners) who claim a tip credit must prepare weekly tip credit wage statements for each employee. These documents show the employee’s effective hourly rate for the workweek. They must include:

• Hours worked (tip credit hours)
• The rate of cash wages the employer will pay
• Reported tips
• Any other information affecting effective hourly rate calculations

Employers must provide these statements within two weeks of the end of each workweek. They can include it on the employee’s paystub as a memo or addendum or create a separate form. Maryland law requires employers to keep copies of these statements for at least three years.

Insufficient tips

Maryland expects tipped workers to make at least $15 per hour with tips plus base wages. If there is a shortfall, it is the employer’s responsibility to make up the difference. This rule ensures that all employees take home livable wages regardless of their success at receiving tips.

Overtime

As mentioned above, Maryland law allows employers to claim tip credit on overtime wages. However, the tipped minimum wage is still $3.63, even with the higher overtime minimum wage threshold of $22.50. If an employee cannot bring their gross wages to $22.50, the employer must pay the shortfall.

Non-tipped tasks

Maryland law prohibits employers from claiming a tip credit for the hours employees work non-tip tasks. For example, if an employee cleans, washes dishes, or restocks shelves during a shift, the employer must pay them full minimum wage for that shift. This rule prevents employers from decreasing employee base wages during shifts with fewer opportunities to earn tips.

Tip pooling in Maryland

Like many states, Maryland allows tip pooling. A tip pool is a shared fund where employees combine their tips and redistribute them based on agreed-upon factors, such as role, position, or hours worked. This approach incentivizes teamwork, evens out tip differences, and gives employees more consistent opportunities to earn tips, no matter the shift, section, or day.

Maryland tip pooling rules

Maryland follows the FLSA guidelines for tip regulations. These regulations protect fair pay by requiring proper notice to employees and setting limits on who can join tip pools, how tip credits are used, and when tip arrangements can be mandatory.

Eligible participants

	If the employer claims tip credit	If the employer does NOT claim tip credit
Tipped employees	✅	✅
Non-tipped employees	✅	❌
Managers and supervisors	❌	❌

Since tipped employees supply most tip pool contributions, they’re always eligible to join tip pools. Employers may permit non-tipped employees (such as back-of-house staff) to participate in tip pools as long as the establishment doesn’t claim tip credits.

However, under the FLSA, managers and supervisors can’t participate in tip pools—even if they sometimes do tipped work. Their power over employees increases the risk of unfair distributions, whether through subtle pressure or direct manipulation.

Notice requirements

To give employees the opportunity to review and, if needed, challenge or discuss the tip pooling terms, employers must inform employees of tip pooling arrangements in advance. The notice must be verbal or written and provide the following information:

• Which employees are eligible for participation
• Details of the distribution method (e.g. by role, hours worked, or position)
• The timing of share distribution

Tip credit compliance

Tip pool shares are still considered tips, which means employers must make sure employees don’t earn less than minimum wage after pooling. If an employee’s total pay falls short, the employer is responsible for covering the difference.

Mandatory tip pooling

Employers can require tip pooling as long as they follow all FLSA rules. They may even make participation a condition of employment. However, employers who require tip pooling without following these regulations risk losing the right to claim tip credits, facing civil penalties, and even being sued by employees.

Legal consequences of violating tip laws in Maryland

The consequences of violating tip laws in Maryland vary depending on the severity, type, and intention of the offense. Common offenses include taking or withholding employee tips, allowing managerial participation in tip pools, and failing to provide notices for tip credit or tip pooling implementation.

Wage claims

Employers harmed by tip law violations may file wage claims with the Maryland Department of Labor, Division of Labor and Industry (DLI), Employment Standards Service (ESS), which will then investigate the employer. Successful wage claims entitle employees to the following:

• Back pay: In most cases, the ESS requires the employer to pay back all unpaid wages from the affected pay periods.
• Liquidated damages: If the ESS determines that the employer acted in bad faith, they may entitle the employee to liquidated damages equal to the unpaid wages. This doubles the amount the employer owes.
• Wage liens: A wage lien is a legal claim that places a legal hold on employer properties until the employer pays back all owed wages. Employees can file wage liens against employers who fail to provide back wages even after receiving written notice.

Lawsuits

In Maryland, employees can take tip-related cases directly to court. This typically happens when wage claims fail to resolve the issue or when the employee wants stronger remedies, like additional damages or legal fees. Examples of additional remedies lawsuits can provide include:

• Triple damages: Some courts may require employers to pay unpaid wages plus double the same amount in liquidated damages. This penalty typically punishes employers who are guilty of willful, repeated, or systemic wage violations.
• Attorney’s fees: Successful lawsuits may entitle employees to compensation for attorney’s fees and court costs. By forcing employers to cover legal expenses, this law helps make legal action more accessible for workers.

Groups of employees with similar claims may file class action or collective action lawsuits against their employer together. This allows courts to handle multiple similar cases simultaneously and enact consistent rulings among all affected parties.

Civil penalty

The state may also impose fines (called “civil penalties”) to punish tip-related violations. Unlike back wages and damages, civil penalties do not reimburse employees and instead serve purely as punitive measures to deter future non-compliance. The size of the fine depends on factors like the number of employees affected, the severity of the offense, and the employer’s past violations.

Criminal liability

In extreme cases, employers who willfully break tip laws can face criminal charges. These penalties are usually reserved for repeat offenders who ignore multiple orders to follow the law. It may also impose criminal liability on offenders guilty of the following types of violations:

• Falsifying tip records
• Tax fraud (e.g. misreporting tips to evade taxes)
• Embezzlement of employee tips

Employers with criminal charges may need to pay fines or restitution to employees. In truly severe cases, you may also face possible jail time.

Manage your tips more efficiently with 7shifts

Managing tips in Maryland can be complex, especially with the state’s strict documentation requirements for tip credits. Simplify the process by automating key tasks. With 7shifts’ tip management software, you can automatically calculate tip pool shares based on your policies, transfer tips directly to employee bank accounts, and give staff real-time visibility into tips owed and paid.