North Carolina Tip Laws for Employers: A Guide on Policies and Fair Labor

 

North Carolina typically follows federal rules for wages and tips. However, it does have unique regulations for tip pooling and credit, where employees must be able to keep a majority of their own tips. As such, restaurant owners must be extra careful about how they structure tip pools and track tips earned.

What counts as a tip in North Carolina?

A tip is a voluntary payment a customer leaves for a worker, usually someone in a service role like a server or bartender. Under federal and North Carolina’s tip laws, tips are not considered wages unless you’re following the rules to legally claim the tip credit.

If you don’t meet these requirements, then the tips earned by your team can’t be counted toward meeting the minimum wage. In that case, you’ll owe the full minimum cash wage, even if your employee made $100 in tips that shift.

What’s a service charge?

It’s also important to understand what doesn’t count as a tip. A service charge is a mandatory fee you add to a customer’s bill, often for things like large parties, private events, or banquets. Unlike a tip, which the customer chooses to leave, a service charge is required by your business and considered employer property.

Even if the customer thinks they’re tipping, the law says otherwise. If you’re paying tipped employees the minimum cash wage and using the tip credit, you cannot include service charges in that calculation.

There are tax rules to consider, too. The North Carolina Department of Revenue (NCDOR) allows a tax break if the charge meets three key rules:

1. The service charge must be 20% or less of the total sale.
2. It must be given only to employees who directly serve the guest, such as servers and bartenders.
3. It cannot be shared with ineligible staff, like managers, supervisors, hosts, valets, or bartenders who didn’t serve the table.

Service charges also can’t be included in a tip pool. That’s because they’re considered revenue, and not something earned by tipped employees.

Who qualifies as a tipped employee?

Under both federal and North Carolina law, a tipped employee is someone who regularly earns more than $30 per month in tips. This is the legal threshold for using the tip credit, which allows you to pay less in direct wages as long as the employee makes enough in tips to reach the minimum wage.

Typical tipped employees include servers, bartenders, and bussers, anyone who directly interacts with guests and earns tips as part of their regular work. BOH workers, like cooks, dishwashers, and prep staff, don’t usually meet the tipped employee standard, unless they’re directly serving customers (which is rare).

It gets more complex with dual jobs. If one of your employees does both tipped and non-tipped work, like a server who also works a few hours a week cleaning or restocking. You must track their time separately. You can only apply the tip credit to the hours they spend in their tipped role. For their non-tipped hours, you must pay the full minimum wage.

Let’s say a server works 30 hours waiting tables and 10 hours cleaning the restaurant. You can pay the tipped rate for the 30 hours, but not for the 10 spent on cleaning.

Use restaurant task management software to separate tipped and non-tipped duties, and track when each task is done. With this tool, you can assign specific cleaning tasks, like deep cleaning, restocking, or maintenance work, outside of service hours. This way, you can pay your team correctly for those hours.

Tip credit and minimum wage structure

The minimum wage in North Carolina is $7.25 per hour, which follows the federal rate. But employers are allowed to pay as little as $2.13 per hour in direct wages to tipped employees.

The remaining $5.12 can be made up by the tips they earn, known as the tip credit. You need to follow specific rules to use the tip credit legally, though. First, your employees must always end up with at least $7.25 per hour when you combine their cash wage and their tips earned. If they don’t earn enough in tips to cover the difference, you must make up for the difference in cash.

For example, let’s say one of your servers works a slow lunch shift and only earns $2 in tips per hour. If you’re paying $2.13 as their minimum cash wage, they’ve only earned $4.13 total per hour.

You’re responsible for paying an extra $3.12 in cash to make sure their total hourly pay reaches the $7.25 mark. Failing to do this, even accidentally, can lead to back pay claims, fines, or worse.

Tip pool and ownership rules

All tips belong to the employee who earned them. As an employer, you can’t take a cut, and managers and supervisors aren’t allowed to keep any portion of an employee’s tips.

You can keep the tips for equal distribution, but only under strict restaurant tip pooling laws. The tip pool must be limited to your FOH team. If you’re using the tip credit, you cannot include BOH workers.

North Carolina also has the 15% retention cap. If you’re taking the tip credit, employees must keep at least 85% of their individual tips, even when they’re part of a tip pool. That means no mandatory pool can take more than 15% from what each employee personally earned in tips during their shift.

For example, if a server earns $70 in tips, and you’re claiming the tip credit, they must keep at least $59.50. You can’t require them to put more than $10.50 into the pool. It’s stricter than the federal rule, which allows as much as 100% of employees’ tips to be pooled and shared.

Additionally, if you do want ot share tips with BOH staff, you can choose to pay all your employees at least $7.25 per hour in direct wages and give up the tip credit. Allowing BOH staff to participate in tip sharing can boost morale, but it can also increase restaurant labor costs.

Credit card tips and processing fees

North Carolina allows employers to deduct processing fees from tips that are paid by credit card. However, you can only deduct the actual fee charged by your payment processor. It must also be proportional to the tip amount, not the whole bill.

Let’s say your processor charges a 3% fee. If a guest leaves a $10 tip on a credit card, you can keep 30 cents to cover that cost. But you can’t deduct more than that, and you must still meet the minimum wage rules.

That’s where things get tricky. After the fee is taken out, the employee’s total earnings (cash wages plus tips) must still equal at least $7.25 per hour. If the tips earned are low for the shift, even a small card fee could push them below that line. In that case, you’re required to make up the difference in direct wages.

Imagine a server is paid $2.13 per hour in cash and earns just enough credit card tips to hit the full minimum wage. If you try to take out processing fees from those tips, their pay drops below minimum wage. That’s already a violation. In this case, you’ll have to cover the processing cost yourself to stay compliant.

Overtime pay rules for tipped employees

Overtime pay should be 1.5x the regular minimum rate, which is $7.25 per hour, not the cash wage. That brings the overtime rate to $10.88 per hour. If one of your servers works 50 hours in one week, they get 10 overtime hours. The breakdown would be:

• 40 regular hours x $2.13 (cash wage) = $85.20
• 10 overtime hours x $5.76 (cash wage) = $57.60

Total cash wage required from the employer = $142.80

• 50 hours x $5.12 (tip credit) = $256

Total minimum pay to reach = $398.80

Even if the server is paid $2.13 per hour in cash wages and earns tips to make up the rest, the total rate must still equal at least $398.80 for the week.

Required notices and record-keeping

You need to follow strict documentation rules when using the tip credit in NC. It includes giving advance written notice to your tipped employees and keeping accurate records on file.

Before you apply the tip credit, you must notify employees in writing. This notice must clearly include the cash wage you’ll pay (minimum $2.13 per hour), the tip credit amount (up to $5.12 per hour), and the employee’s right to keep all tips earned, except in a valid tip pool. Without this written notice, you’re not legally allowed to use the tip credit.

There’s also the tip certification requirement. You must keep records of how much each employee earns in tips, and those records must be signed by the employee, either monthly or every pay period.

Let’s say a bartender earns $400 in tips one week. You must document that amount and have them sign off on it. If you’re audited and can’t produce these signed tip logs, you could lose the tip credit, even if you paid everything correctly.

To stay compliant, make sure to give written tip credit notices at hire and when pay changes. You can use digital or paper forms to collect signed tip certifications and store those records securely for at least two years, in case of an audit.

Recent tip laws to consider

North Carolina restaurant owners should be paying close attention to House Bill 339, also called the Economic Security Act of 2025. The bill would raise the state’s minimum wage from $7.25 per hour to $22 per hour starting January 2026. That’s more than triple the current rate. It would also eliminate the tip credit, meaning restaurants could no longer count tips earned toward meeting the minimum wage requirement.

If the state law passes, the first change happens right away. The maximum tip credit would drop from $5.12 to $5 per hour. That means the required minimum cash wage you pay would increase to $2.25 per hour. You’d also have to issue new written notices to employees.

The big shift hits in 2026, which will eliminate the tip credit completely. You’d need to pay $22 per hour in direct wages to all tipped employees, no matter how much they earn in tips.

Tip pooling will still be allowed, but North Carolina’s 15% cap will stay in place. This proposed law would dramatically boost your operational expenses. To stay ahead of these increases, you can start modeling your labor costs using a $22 per hour pay rate. Run real numbers to see how this would affect your budget.

You can also think about adding service charges and reviewing your menu pricing to cover higher direct wages. Consider the different scenarios and strategies you can work with so that you can accommodate these wage changes.

Make restaurant operations smooth

Understanding North Carolina’s tip credit rules and staying on top of changing wage laws isn’t easy, but it’s a huge part of running a restaurant responsibly. Now’s the time to review your payroll practices and policies to make sure you’re applying the correct rates and maximizing each labor dollar.

Getting payroll right starts with optimized shifts. With restaurant scheduling software, you can easily assign team members based on their availability. 7shifts also lets you track time worked and make sure tipped employees get the pay they’ve earned by integrating with your POS system.