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

 

Michigan offers pretty solid protections for tipped employees, namely: a minimum wage rate above the federal standard, a reasonable tip credit maximum, and restrictions on tip pooling requirements. Understanding these protections and why they matter helps employers build strong employee relationships, avoid legal consequences, and run smooth operations.

What is a “tip” in Michigan?

Under Michigan law, a tip is a payment a customer voluntarily gives an employee outside the amount they owe for the product or service delivered. For money to qualify as a tip, the following statements must be true:

• The customer must provide the money voluntarily.
• The customer must give the money directly to the employee.
• The customer must determine the amount they give.
• The employer cannot require the customer to pay the amount.

Tips count as employee income and belong solely to the employee. Employers may not keep, deduct, or control tips except to distribute shares from a valid tip pool.

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

Michigan law defines tips as extra money customers voluntarily give employees, and service charges as fees employers add to customer bills. While they both pay for services rendered, tips belong to the employee, while service charges belong to the employer.

Who qualifies as a tipped worker in Michigan?

Although any employee can receive tips, not all of them legally count as “tipped employees.” This classification matters because it lets employers know who they can include in tip pools or pay tipped minimum wage. Misclassifying employees exposes employers to the risk of penalties, back pay, and legal action.

Michigan’s criteria for tipped employees come from the Michigan Improved Workforce Opportunity Wage Act, which follows the Fair Labor Standards Act (FLSA) guidelines. These guidelines define tipped employees as workers who regularly and customarily receive $30 per month in customer tips. In other words, tipped employees work in occupations where customers customarily leave tips.

Examples of tipped roles include:

• Servers
• Bartenders
• Baristas
• Bussers
• Food runners
• Delivery drivers
• Valet attendants
• Hairdressers
• Nail technicians

Minimum wage and tip credits in Michigan

Full minimum wage for adults	$12.48 per hour
Tipped minimum wage for adults	$5.99 per hour
Minimum wage for minors	$10.61 per hour
Tipped minimum wage for minors	$5.99 per hour
Training wage for new hires aged 16 to 19 (applicable only for the first 90 days)	$4.25 per hour

In February 2025, Michigan’s minimum wage rose to $12.48 per hour. State law also allows employers to pay minors (employees under 18) 85% of the full minimum wage, or $10.61 per hour. Employers may also pay newly hired employees aged 16 to 19 a training wage of $4.25 per hour for their first 90 days of employment.

Under Michigan law, employers may claim up to $6.49 per hour in tip credits from tipped employees over the age of 18. This means that tipped employees can earn a reduced base wage of $5.99 as long as their tips raise their total earnings (base wages plus tips) to the full minimum wage. Tipped employees under 18 make the same tipped minimum wage as adult tipped employees.

Michigan tip credit rules

To ensure that all employees receive fair pay, Michigan follows the FLSA guidelines for regulating tip credits. The state also enforces additional rules for applying the tip credit to the wages of employees under 18.

Employers may only claim tip credits from tipped employees

Under the FLSA guidelines, employers may only apply tip credits to employees who work in tipped occupations and earn at least $30 per month in tips. If an employee does not meet these criteria, the employer must pay them the full minimum wage. This rule helps guarantee fair wages for employees with limited opportunities to earn tips.

Employers must make up the difference if tips fall short

Tip credits help employers offset labor costs to customers. However, it is still the employer’s responsibility to ensure that their employees receive fair wages. Under Michigan law, if an employee cannot earn enough tips to raise their total earnings to the full minimum wage, the employer must make up the difference.

Employers must provide notice of tip credits

Both Michigan law and FLSA regulations require employers to inform all affected employees about any intent to apply tip credits. This ensures employees clearly understand their pay structure and have the chance to raise concerns or negotiate beforehand.

The FLSA allows both verbal and written notices, but recommends written notices for easier record-keeping. A tip credit notice should provide the following information:

• The base wage paid to the employee
• The additional amount the employer will claim as a credit
• Assurance that the employer will not retain or control any tips the employee earns, unless part of a valid tip pooling arrangement

Employers who fail to provide notice may lose their right to apply tip credits. They may also become liable for unpaid wages and liquidated damages.

Employers may not reduce minor base wages below the tipped minimum wage

Michigan law allows employers to apply a tip credit to workers under 18. However, while employers may pay non-tipped minors a reduced wage of $10.61 per hour, they must pay tipped minors at least $5.99 per hour, matching the rate for adult tipped employees. This prevents the exploitation of younger workers in tipped positions.

Does Michigan follow the 80/20 rule?

Unlike many states, Michigan doesn’t enforce the 80/20 rule. It follows the FLSA, which states that employers can claim a tip credit even when employees perform occasional non-tipped duties as long as those tasks don’t take up a substantial portion of their time.

Tip pooling in Michigan

Like many states, Michigan allows tip pooling. In this arrangement, employees combine tips into one group fund, then distribute shares based on agreed-upon factors, such as tenure, role, and number of shifts. This allows workers to share earnings more evenly and support employees in less tip-heavy roles (such as bussers and food runners).

Michigan tip pooling rules

To ensure fair distribution of tip pool shares, Michigan enforces certain regulations on tip pooling arrangements. These rules define valid arrangements, eligible tip pool participants, and what to do when earnings after distributions fall short of minimum wage.

Tip pooling must be voluntary

According to Michigan’s minimum wage law, employers may not force employee participation in tip pooling arrangements or require tip pooling as a condition of employment. Employees should also have the freedom to withdraw from tip pooling arrangements at any time without fear of retaliation from the employer or other tip pool participants.

Only eligible employees may participate

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

Michigan only allows certain types of employees to participate in tip pools. Typically, tipped employees, such as servers, bartenders, and bussers, are always eligible to receive tip pool distributions. Non-tipped employees, such as back-of-house workers like cooks or dishwashers, may only participate if the employer doesn’t claim tip credit.

Meanwhile, managers and supervisors are always excluded from tip pools. Because they hold authority over tipped staff, their involvement could create conflicts of interest and lead to unfair tip distribution.

Employers must pay the difference if tip pool distributions fall short

In Michigan, tip pool distributions still legally count as tips, even if the employee does not directly receive them from the customer. This means it’s still the employer’s legal obligation to pay the deficit if an employee’s gross earnings after tips fall short of the state minimum wage. The law explicitly prohibits tip pools from reducing an employee’s gross pay below the state minimum.

Legal consequences of violating Michigan tip laws

If an establishment violates Michigan tip laws, its employees may file complaints with the Michigan Wage and Hour Division, which can lead to investigations or audits. Employers found guilty may face legal and financial penalties, such as compensation to employees, civil fines, and loss of tip credit rights.

Back pay and liquidated damages

The state requires employers found guilty of unlawfully withholding employee tips to reimburse employees for lost wages. If the court deems that the violation was willful or that the employer acted in bad faith, it may also request liquidated damages equal to the amount of unpaid wages, doubling the total amount the employer owes.

For example, let’s say a server earns $2,000 worth of credit card tips in one month. However, their employer willfully refuses to transfer the money to their account. The server files a complaint with the Wage and Hour Division, which then orders the employer to pay both back pay and liquidated damages. This means the employer owes the server a total of $4,000.

Civil monetary fines

Michigan punishes severe wage-related offenses, including tip violations, with financial penalties up to $2,500. Unlike back pay and liquidated damages, these fines don’t go to the employee and are instead paid to the state. Civil fines usually come after a formal investigation, compliance audit, or an employee complaint handled by the Michigan Wage and Hour Division.

Examples of issues that expose employers to civil fines include:

• Enforcing mandatory tip pooling
• Including managers and supervisors in tip pooling
• Improperly applying tip credits
• Withholding or misappropriating tips
• Not compensating shortfalls when tips don’t meet minimum wage
• Violating notice or record-keeping requirements

Loss of tip credit

If the state finds an employer non-compliant with tip laws, it can revoke their right to claim tip credits, forcing them to pay all employees full minimum wage regardless of tips earned. This change can apply going forward, or even retroactively, requiring the employer to reimburse wages for past violations.

Easily manage your tips with 7shifts

While Michigan’s wage laws can be confusing, managing tips doesn’t have to be. With 7shifts’ tip management software, you can automate time-consuming tasks like tip pool calculations, payouts, documentation, and reporting. Our solutions give you more room to strengthen your strategies, team relationships, and overall operations.