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

 

Nebraska tip laws are stricter in some areas while staying silent on others. This makes compliance extra tricky for restaurant operators, especially those using the tip credit. On one hand, the state enforces tighter rules around non-tipped duties and wage deductions. On the other hand, it doesn’t clearly say whether you can deduct credit card processing fees from tips.

This leaves you to interpret federal law and take on the risk if things go wrong. That’s why it’s important for you to stay informed and have systems in place to stay on top of wages, tips, and what your team members are doing in real-time.

What counts as a tip in Nebraska?

According to statute 48-1203 and the Fair Labor Standards Act (FLSA), a tip is money given voluntarily by a customer directly to the employee. The customer must decide the amount on their own, and they must also choose who gets it. If it’s not voluntary, it’s not legal to treat it as a tip under Nebraska tip laws.

If any of these rules aren’t met, the payment is considered a service charge or house revenue, not a tip. You need to know the difference because it affects how you calculate wages and tip credits.

What’s a service charge?

If you’re adding set fees to a customer’s bill, it’s considered a service charge and not a tip. Common examples include an 18% gratuity added for parties of six or more or a fixed service fee for private dining rooms or events.

These charges aren’t considered tips because the customer didn’t choose the amount or who gets it. Instead, the fee is set by your restaurant, which means it’s treated as employer revenue. It’s not money belonging to the employee.

If you decide to share those funds with your staff, you must treat them as wages. They need to be included in the employee’s regular pay. You must also withhold taxes, like Social Security and Medicare. Another thing to remember is that they don’t count toward the tip credit.

So, if you pay servers a lower cash wage using the tip credit, you can’t use service charges to make up the rest of their pay. Only voluntary tips left by guests count toward meeting the state minimum wage.

Who qualifies as a tipped employee?

Not everyone who works in a restaurant can be paid as a tipped employee. To qualify, an employee must regularly receive tips, specifically, more than $30 per month in tips from customers. Servers, bartenders, and bussers are typical roles that qualify as tipped employees.

Nebraska law does not allow you to apply the tip credit to BOH employees, like cooks or dishwashers, unless you’re paying them the full minimum wage. Even if your BOH team shares in a tip pool, you must be paying them the full wage for it to be legal.

Managers and owners are excluded. Even if a shift manager occasionally waits on tables, they can’t share in a tip pool unless they’re serving the customer directly and solely. Even then, they can only keep the tips that guests personally give to them. They can’t take a cut of the group’s tips under any condition.

Minimum and tipped wage

Nebraska’s minimum wage is $15.00 per hour. But if you’re using the tip credit, you’re allowed to pay tipped employees a lower cash wage of $2.13 per hour, as long as their tips make up the difference.

If a server works an 8-hour shift at $2.13 per hour and only earns $60 in tips that day, their total pay falls below the legal minimum. It’s your job as the employer to make up the difference, so the employee still earns at least $120 for that shift (8 × $15.00).

Under state law, this $2.13 rate is fixed and doesn’t go up, even though the state minimum wage does. This makes the maximum tip credit $12.87, which is the amount you’re relying on tips to cover for each hour your tipped employees work.

In 2027, the state will adjust the minimum wage every year based on inflation, using the Midwest Consumer Price Index (CPI-U). The cash wage for tipped employees will stay the same, which means your tip credit will likely grow over time.

Tip pools and ownership rules

Tips belong to the employee, not the employer. That means once a customer leaves a tip, it can’t be kept by the business or shared with people who aren’t allowed to get it. Under both federal and state law, the only time you, as the employer, can touch those tips is when you’re running a legal tip pool.

A tip pool is a system where tips are shared among employees. It can help balance earnings between staff who work together during service, like servers and bussers. But it has to follow strict restaurant tip pooling laws.

You can’t keep any part of the tips yourself, and you can’t give them to managers or supervisors. If someone has hiring power, controls schedules, or runs the floor, they’re considered management, and they’re not allowed in the tip pool.

If you decide to pay all your staff the full minimum wage and skip the tip credit, you get more flexibility. In this case, your tip pool can include all non-supervisory staff, from servers to dishwashers.

This setup is often used to promote fairness across the team and improve morale, especially for BOH employees who don’t usually receive tips. But it only works if you’re not using the tip credit.

Dual jobs and non-tipped duties

If your team members do more than one job or switch between tipped and non-tipped duties during a shift, you need to follow both federal and Nebraska rules to stay compliant.

Under the federal rule, employers can still claim the tip credit for some non-tipped tasks, as long as those duties are directly related to the tipped job. For example, a server wiping down tables or filling water glasses can still be paid the minimum cash wage with the tip credit applied. These are considered tip-supporting duties.

But there’s a catch. The work has to support the tipped role and be done during or close to the shift when the employee is earning tips.

Nebraska law goes a step further. It says that if a tipped employee spends time doing tasks that are not related to their tipped role, you cannot claim the tip credit for that time. Instead, you must pay them the full minimum wage for any unrelated work, like running errands for the restaurant or deep cleaning the kitchen after closing.

Even if the same employee is earning tips later in the shift, those unrelated tasks must be paid at the full wage. Stay compliant by tracking what kind of work each employee is doing. There are three main categories you should track:

• Tipped tasks (taking orders, serving food)
• Tip-supporting tasks (rolling silverware, setting tables)
• Unrelated duties (restocking shelves in storage, cleaning bathrooms)

Using a digital time clock with task management features helps you do this right. Some systems let employees log time by task or tag what they’re working on, so you can clearly separate what’s eligible for the tip credit and what isn’t.

Credit card tips and processing fees

Credit card tips are also considered to be an employee’s earned income. The tricky part is knowing if you can deduct the processing fees or not. While the FLSA allows this in certain cases, Nebraska doesn’t have clear regulations on whether you can charge the fee from the electronic tip.

While the state doesn’t set regulations on deducting processing fees from credit card tips, it does strictly protect employees from losing wages through improper deductions. As an employer, you’re not allowed to take money out of an employee’s paycheck if it causes their total pay to drop below the state minimum wage, even if the reason seems fair.

To keep your business safe, it’s best not to deduct any credit card processing fees from employee tips. Even if the fee is small, taking it out of tips could bring the employee’s total earnings below the minimum wage, especially if you’re using the tip credit. If that happens, your restaurant could face claims for unpaid wages or lose its ability to use the tip credit at all.

Aside from processing fee deductions, you also can’t charge employees for walkouts (customers who leave without paying), broken dishes or equipment, cash register shortages, and uniform costs or required tools. Even if the employee caused the issue, Nebraska law says you can’t charge them for it unless they’ve signed a clear written agreement allowing it. And even then, those deductions still can’t bring their wage below $15.00 per hour if you’re using the tip credit.

Overtime pay rules for tipped employees

Overtime must be calculated at 1.5x the full minimum wage, not the cash wage. This means the overtime rate is $22.50 per hour. If you’re using the tip credit, you can still pay the employee $2.13 per hour, with their tips expected to make up the rest. If their tips don’t bring their total hourly pay up to $22.50, you must pay the difference.

Let’s say a server works 9 hours in one shift (1 hour of overtime). You pay: $2.13 per hour × 9 hours = $19.17. If that employee earned $80 in tips for that day, their total earnings would be $99.17.

However, the required pay is:

• 8 hours × $15.00 = $120
• 1 hour OT × $22.50 = $22.50
• Total required = $142.50

In this case, you’d owe an additional $43.33 to meet the full wage and overtime requirement. If you don’t catch and correct that, you could face wage violation claims or lose your right to use the tip credit.

Required notices and record-keeping

Nebraska doesn’t require employers to give written notice when using the tip credit, but federal law does. If you plan to pay your tipped employees a cash wage and use their tips to meet the minimum wage, you must follow the rules under the FLSA.

The FLSA says you need to give employees clear notice that you’re paying a cash wage of $2.13 per hour and claiming a tip credit. They must also be aware that their tips should bring their total pay up to the full minimum wage and that they get to keep all tips (unless in a legal tip pool).

This notice can be written or verbal, but it’s best to include it in your onboarding paperwork or employee handbook and have your team sign off on it. That way, you have proof if a wage claim ever comes up.

Always remember that, as the employer, you carry the full burden of proof. That’s why it’s important that you keep accurate records. This includes daily tip reports, tip pool data, and wage statements.

Also, use employee document storage software to keep the signed copies of your tip credit notice. This might be a signed form or a section in your employee manual that’s been acknowledged, so you have proof that you explained the tip credit policies and that your staff understood them.

Upcoming tip and wage changes

In 2027, the minimum wage will rise every year in Nebraska based on inflation. As mentioned, the tipped cash wage stays fixed at $2.13 per hour, which means the amount you have to rely on tips to cover keeps getting wider.

It has become more important than ever to track tips carefully and make sure your tipped employees are making enough to meet or beat the minimum wage. If they fall short, you’re legally required to make up the difference, even if business was slow for that day or shift.

As the wage floor rises, you’ll need to plan your labor costs since tips aren’t always predictable. Failing to plan for these changes could put your business at risk for wage claims, lost tip credit rights, or even fines.

Compliance penalties under the NWPCA

The Nebraska Wage Payment and Collection Act (NWPCA) outlines serious penalties for non-compliance. If you fail to pay the full wages owed, whether due to improper tip credit use or illegal deductions, you could be charged with a Class III misdemeanor. That’s a criminal offense under Nebraska law.

If you falsify payroll records or try to hide wage issues during an investigation, it gets worse. That’s a Class V misdemeanor, which can lead to fines or even jail time.

But the real cost comes in the form of civil liability. If an employee files a successful wage claim, you could be ordered to pay all unpaid wages, an equal amount in liquidated damages (which doubles what you owe), and attorney fees and legal costs.

For example, if an employee is shorted $500 due to a tip credit error, you might end up paying $1,000 or more once damages and legal fees are added. If several employees are involved, or if errors go unnoticed for months, the total payout can skyrocket.

Knowing this, restaurant owners and managers must stay informed about federal and state labor laws. You should also perform regular internal audits and training, and use tools that can help you stay on top of payroll.

Staying informed on Nebraska tip laws

Understanding and complying with Nebraska’s tip laws is about protecting your business and taking care of your team. As wages increase and calculations keep changing, now is the time to review your policies and update your systems. This way, you can stay ahead of potential wage issues and make sure you pay your staff fairly.

Managing wages and tips by hand puts you at risk of compliance errors. Our restaurant scheduling software makes it simple. We help you track what tasks employees are doing, log tip earnings, and monitor labor costs, without adding more to your plate. Use 7shifts and manage your team with confidence.