North Dakota Tip Laws: Guide to Compliance and Fair Labor

 

Running a successful business in North Dakota requires a deep understanding of the state’s tip laws. Following state and federal regulations for tip ownership, minimum wage, tip pooling, and other tip-related topics helps you create a healthy working environment for your tipped employees. By supporting their right to transparency and fair pay, you can build employee trust, avoid legal issues, and ensure effective operations.

What is a “tip” in North Dakota?

North Dakota follows the tip definition set by the Fair Labor Standards Act (FLSA), which states that a tip is a sum of money a customer voluntarily gives an employee, typically in recognition of good service, outside the cost of a product or service. Tips can come in multiple forms, including:

• Cash the customer gives to an employee
• Credit card amounts the customer labels as tips
• Digital app tips (through payment solutions such as Venmo or Square, or service platforms like DoorDash and Uber Eats)
• Tips left in tip jars
• Tip pool shares

The most important characteristic of a tip is that the customer gives it voluntarily. They decide the amount on their own without instruction from the establishment.

In North Dakota, tips count as employee income and are the sole property of the employee. As an employer, you cannot keep, withhold, or reduce tips. The only time you are allowed to handle tips is when redistributing shares from credit card earnings, digital apps, tip jars, and valid tip pools.

What is the difference between tips and service charges?

Although customers view tips and service charges similarly, since they both add service-related costs on top of their bill, businesses see these terms as legally distinct. A tip is a voluntary gratuity a customer offers an employee, while a service charge is a mandatory payment the business adds to the customer’s bill.

Tips count as employee income and belong exclusively to the employee who received them. Meanwhile, service charges count as business revenue and belong to the employer. You cannot control what employees do with tips, but you can allocate service charge earnings however you please. If you choose to give service charge revenue back to employees, they still won’t count as tips.

Who qualifies as a tipped employee in North Dakota?

While technically, all employees can earn tips, not all employees count as tipped employees. The term “tipped employee” refers to a special category of employees who frequently earn tips. If an employee falls under this category, you can pay them a lower minimum wage and include them in tip pools.

According to the FLSA, a tipped employee must regularly and customarily earn at least $30 per month in tips. This means that the employee should work in a role where tipping is common and culturally expected. Examples of tipped occupations include:

• Servers
• Bartenders
• Baristas
• Hosts
• Bussers
• Food runners
• Hair stylists
• Nail technicians
• Bellhops
• Valets
• Delivery drivers

Minimum wage and tip credits in North Dakota

The minimum wage in North Dakota matches the federal rate of $7.25 per hour. However, you may pay full-time students and vocational learners 85% of the full minimum wage, which amounts to about $6.16 per hour.

Employers can also claim tip credits on the base wages of tipped employees. The current tipped minimum wage is $4.86 per hour, which is higher than the federal rate of $2.13 per hour. However, if you pay employees this reduced base wage, they must ensure that their total earnings (base wages plus tips) amount to the full minimum wage. Otherwise, it’s your responsibility to cover the deficit.

North Dakota tip credit rules

In North Dakota, if you claim a tip credit, you must follow the requirements of the federal Fair Labor Standards Act (FLSA). These rules ensure that tipped employees receive fair wages and fully understand how their pay works.

Employee eligibility

In North Dakota, you may only apply a tip credit to employees who customarily and regularly earn tips. To qualify, the employee must receive at least $30 in tips per month. If they do not meet that threshold, you must pay them the full state minimum wage of $7.25 per hour. This rule ensures that workers without consistent tipping opportunities receive fair base wages.

Dual jobs

Federal law states that you may only claim a tip credit for the time employees spend on tipped work or non-tipped tasks that directly support tip-earning duties. Examples of valid non-tipped tasks include clearing tables, refilling condiments, or preparing silverware.

However, if a worker spends a substantial portion of their shift on unrelated, non-tipped work, you must pay the full minimum wage for those hours. This rule keeps employers from paying lower base wages to employees with fewer opportunities to earn tips.

Minimum wage requirements

When using a tip credit, you must ensure that each employee’s total base wages plus tips reach at least $7.25 per hour. If an employee’s earnings fall short, you are required to make up the difference. This safeguard guarantees that tipped workers always receive at least the full minimum wage through unpredictable tip income.

Notice requirements

In North Dakota, you must inform employees about the full details of their pay when you hire them and any time their pay changes. This includes any details about tip credit arrangements. In your notice, you should clearly explain:

• The direct hourly wage you will pay the employee
• The amount of tip credit you plan to claim
• That you will not claim more in tip credit than the employee actually earns in tips
• That you will not take or keep any portion of the employee’s tips, except when distributing them through a lawful tip pool
• That you will not apply a tip credit without giving advance notice

Clear communication helps employees understand how you calculate and manage their wages. With transparency, you can prevent confusion, ensure employee trust, and support compliance with state wage laws.

Tip pooling in North Dakota

North Dakota allows employers to establish tip pooling arrangements, provided you follow specific rules. In a tip pool, employees contribute all or part of their tips to a shared fund, which they then redistribute among eligible staff based on a fair and agreed-upon percentage, such as position, experience, or hours worked.

This system helps balance earnings between frontline staff (like servers and bartenders) and other tipped employees who have fewer direct tipping opportunities, such as bussers and food runners. It also incentivizes teamwork, helping improve overall service quality.

North Dakota tip pooling rules

Establishments with tip pool arrangements in place must follow federal and state laws to ensure that their employees distribute tip pool shares fairly. These rules dictate who can participate, when tip pools are valid, and how to notify employees.

Employee eligibility

North Dakota limits tip pool arrangements to tipped employees. Non-tipped staff, managers, and supervisors may not share in tip pool earnings, even if the establishment doesn’t claim tip credits. This rule is in place to prevent you from diverting shares from employees who typically make reduced base wages.

Voting requirements

Under North Dakota law, employers must set up a vote among tipped employees before creating a tip pool. You may only establish a tip pool if over 50% of tipped employees approve of the idea.

After holding the ballot, you must keep written records of each vote, including the following information:

• Who voted
• What they voted
• How many votes did each option receive

Notice requirements

If you claim tip credits and use a tip pool, you should include details about your tip pool in your tip credit notice. Informing employees of tip pool arrangements in advance helps them clearly understand how much they will receive each pay period.

Special considerations for gaming organizations

North Dakota gives special consideration to gaming sites and organizations. Under North Dakota law, gaming sites and organizations with four or fewer employees on duty may make tip pooling mandatory for all tipped employees. They may also include blackjack dealers and pit bosses or supervisors in tip pools, but only when they are dealing.

Consequences of violating tip laws in North Dakota

If you violate North Dakota’s tip laws, you could face a number of consequences, ranging from financial and legal to reputational. To protect your business against fines, disruptions, and reputational damage, you must take care to fully follow both federal and state wage laws.

Back pay

Offenders caught mishandling employee tips may be required to pay employees back wages for the affected pay period. This penalty typically applies to employees who withhold tips, misuse tip credits, or fail to provide advance notice of tip credits.

Liquidated damages

Employers who willfully (rather than mistakenly) commit tip law violations may need to pay affected employees liquidated damages equal to or greater than the wages they failed to pay. This effectively doubles your penalty.

Civil penalties

Sometimes, the government may enforce punitive measures to stop employers from committing future tip law violations. They impose hefty fines, whose amounts depend on the type, severity, and intention of the offense.

Attorney’s fees

If the employee takes the wage violation to court and wins, they may be entitled to attorney fees and other legal fees. This remedy helps make legal action against employers more accessible while also penalizing employers financially.

Reputational harm

Restaurants caught withholding tips typically face reputational harm. Affected employees often leave and spread word to the local job market. They may report the establishment’s behavior to social media or online review platforms, such as X (Twitter), Facebook, Reddit, Yelp, Google Reviews, and Glassdoor. In severe cases, or if the establishment is well-known, the news may reach local or national media.

Harm to employees

Tip law violations harm employees more significantly than employers. If you don’t report your employees’ tip income properly, they may face financial losses and legal issues.

• Underreported income: Tip law violations often cause employees to report less income than they actually earn. This can create problems later on when they apply for loans, credit cards, or mortgages. Because their tax records don’t accurately reflect their earnings, they may struggle to prove creditworthiness to financial institutions.
• IRS issues: If employees don’t report all their income, the IRS may penalize them with back taxes, interest, and penalties. Unless they successfully file a wage claim to correct the issue, they may even face IRS audits.
• Smaller retirement benefits: Social Security and Medicare rely on accurate payroll taxes. When you withhold tip income, employees contribute less, which lowers the benefits they receive when they retire.
• Reduced unemployment benefits: If employees lose their jobs, underreporting their tip income can shrink their unemployment checks. Benefits are based on earnings from recent quarters, so inaccurate records can directly affect how much they receive.

Save hours with 7shifts

If managing tips under North Dakota’s detailed tip laws feels tedious, it’s best to use tools to simplify the process. With 7shifts’ tip management solutions, you can eliminate manual work. Our software calculates tip pool distributions, transfers tips to employee accounts, and keeps everyone informed with real-time tip tracking, so you can stay focused on running your business.