Ohio Tip Laws: An Employer’s Guide to Compliance and Fees

 

Ohio’s tip laws mirror federal rules, but it does have a higher minimum wage, which makes calculations a bit different and more expensive. Moreover, it’s set to increase every year. That means your payroll and tip management processes need to be reviewed annually to stay compliant.

What counts as a tip in Ohio?

A tip is any extra money a customer chooses to give directly to an employee for good service. These payments are voluntary, and they can come in a few different forms.

Most commonly, tips are left in cash on the table after a meal. But these can also be gratuities left through credit cards, debit cards, or gift cards. Moreover, even if a group of workers shares their tips through a tip pool or tip pooling arrangement, those shared amounts still count as individual employee tips.

What’s a service charge?

Unlike a tip, a service charge is a mandatory fee added to a customer’s bill. Ohio law treats these two very differently, and it’s important for restaurant owners to understand the distinction.

You’ll often see service charges added for things like large party reservations, banquet events, or hotel room service. Because these charges are set by the restaurant and not the customer, they’re not tips under the law. That means the money from a service charge is considered employer revenue, not employee tips.

This difference affects how the money is taxed, too. Tips must be reported by the employee and are subject to FICA taxes (Social Security and Medicare). Service charges, on the other hand, are treated as regular wages if you choose to pass them on to your staff. That means the business is responsible for withholding taxes just like with hourly pay.

To avoid confusion for both customers and employees, you should clearly label these charges on menus and receipts. Use terms like “Service Charge” or “Administrative Fee” instead of “Gratuity.”

Who qualifies as a tipped employee?

An employee qualifies as a tipped employee if they customarily and regularly receive at least $30 in tips per month. This threshold matters because it determines whether you, as the employer, can legally apply the tip credit and pay a lower cash wage.

Common tipped employees include servers, bartenders, bussers, and hosts. If an employee doesn’t meet the $30 per month threshold even for just one month, you must pay them the full minimum wage for all hours worked during that time.

Tipped and minimum wage structure

The minimum wage in Ohio is $10.70 per hour, and it applies to most employees who are not tipped or who don’t meet the tip credit requirements. For tipped employees, you’re allowed to pay a lower cash wage of $5.35 per hour, as long as those workers earn enough in tips to make up the difference.

That difference ($5.35) is called the tip credit. It’s the maximum amount you can count toward meeting the full minimum wage.

If a server works 40 hours a week, they must earn at least $428 total (40 hours × $10.70). You can pay $214 in cash wages (40 hours × $5.35), but their tips must cover the remaining $214.00. If they don’t, you’re required to make up the difference out of pocket.

Ohio’s wage structure is unique because it’s tied to inflation through a constitutional amendment. That means the state minimum wage increases every January 1st, based on cost-of-living changes. Your payroll budget needs to account for annual increases in both the full minimum wage and the tipped wage.

Tip pool and ownership rules

Tips belong to the employee who earns them. It doesn’t matter if they’re left in cash, on a card, or through a group tip pool. That money is considered employee property under both state law and the FLSA. Employers cannot keep any portion of these employee tips for themselves.

Employers can temporarily collect tips to redistribute them through a legal tip pool. This means the business can handle the money for processing purposes (like dividing up credit card tips), but every cent must be returned to eligible employees.

You’ll also need to follow strict restaurant tip pooling laws. You can only include workers who customarily and regularly receive tips. Additionally, managers and supervisors can’t receive any money from a tip pool, even if they pitch in on service duties. That includes assistant managers, shift leads, or anyone with authority to hire, fire, or schedule staff. Even if a manager helps run food or pours drinks, they’re legally excluded from tip sharing.

Including BOH staff in a tip pool is a gray area. If you take the tip credit, you cannot include them in the tip pool, which rules out dishwashers, line cooks, and prep staff. But if you pay the full minimum wage, then it’s allowed to include non-tipped BOH employees, as long as you inform your team about it.

There are exceptions, though. If a BOH worker directly interacts with guests, like a sushi chef or oyster shucker who speaks with diners, they may be considered a tipped employee and be included in the tip pool, even if the tip credit is applied.

Credit card tips and processing fees

When a customer leaves a tip using a credit or debit card, that money still belongs to the employee. But since processing these payments costs the business a small fee, Ohio law allows employers to deduct a portion of that fee from the tip.

The key rule is that you must only deduct the amount that your payment processor charges. For example, if your credit card processor has a 3% fee, and a server earns $100 in credit card tips, you can legally deduct $3 to cover the cost. You can’t deduct more than that, and you can’t deduct any fees from cash tips.

Just as important: deductions from tips must never reduce the employee’s total pay below Ohio’s minimum wage. Make sure you keep accurate records of deductions, and include a breakdown of credit card tip deductions in the employee’s tip report or pay stub so they know exactly what was withheld and why.

Overtime pay rules for tipped employees

Overtime pay is based on Ohio’s full minimum wage, not the lower tipped cash wage. For the $10.70 per hour minimum wage, the overtime rate becomes $16.05 per hour (1.5 × $10.70). Even if you’re using the tip credit, your tipped employees must still earn at least $16.05 per hour for every overtime hour worked.

Let’s say one of your servers worked 45 hours in a single week and earned $200 total in tips. Their wages must come to $508.25, which is broken down to:

• 40 regular hours × $10.70 (Ohio minimum wage) = $428
• 5 overtime hours × $16.05 (1.5× minimum wage) = $80.25

But because the law allows you to take a tip credit, you can reduce how much you’re responsible for, as long as the employee’s total pay (cash + tips) reaches the amount above.

• Cash wage paid:
  • 40 hours × $5.35 = $214
  • 5 overtime hours × $5.35 = $26.75
  • Total cash wage = $240.75
• Tips earned = $200
• Combined pay (cash + tips) = $440.75

Now, as the employer, you’re required to pay $67.50 to bump the server’s earnings from $440.75 to the correct legal minimum of $508.25. Make sure to set up your restaurant payroll system to flag overtime hours for tipped workers so that you stay compliant with wage laws.

Required notices and record-keeping

If you’re using the tip credit, the law says you must give written notice to each tipped employee before their first shift. It must clearly explain five things:

1. The cash wage you’ll pay the employee
2. The tip credit you’re claiming
3. A statement that the tip credit can’t exceed the actual tips earned
4. A clear note that all tips belong to the employee
5. A statement that you’re legally required to give this notice before applying the tip credit

Have your employees sign and date the notice and keep a copy on file. This way, if you ever face a wage complaint or audit, you have proof that you stayed compliant.

The Ohio Department of Commerce requires employers to keep detailed wage and tip records for at least 3 years. But it’s best to keep records up to 7 or 10 years just to be safe in case of potential legal disputes or audits.

These records should include the hours worked by each employee, tips received each day or pay period, pay rates (cash wage, overtime, etc.), and signed tip credit notices from each tipped worker.

Stay proactive with payroll

Since Ohio mostly follows federal tip laws, it’s easier to understand and follow the regulations. With the right knowledge and systems, you can stay ahead of common issues, like underpaid overtime or ineligible tip pooling.

Set up your business for success with restaurant management software that keeps your payroll, tips, and scheduling in sync. From tip tracking and overtime alerts to built-in digital tip credit notices, 7shifts helps you stay compliant without extra admin work.