Oregon Tip Laws for Employers: Your Guide to Compliance and Fees

 

In a state like Oregon, where living costs run high, tips give employee income an extremely valuable boost. To protect employees’ rights to fair compensation, employers need to develop a deep understanding of state and federal tip laws. Complying with rules on tip ownership, minimum wage, tip pooling, and other tip-related responsibilities will help you cultivate healthy working relationships with your tipped staff, improving employee satisfaction and service quality.

What is a “tip” in Oregon?

Oregon law uses the Fair Labor Standards Act (FLSA)’s definition of a tip, which states that a tip is a payment a customer presents to an employee as a reward for good service. Tips fall outside the advertised cost of the product or service, and must come from customers voluntarily rather than from employer charges.

In Oregon, tips count as employee income and belong solely to the employee. You, as an employer, may not keep or withhold tips from employees. You can only handle tips when distributing credit card tip earnings, tip jar earnings, or shares from a tip pool.

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

Although tips and service charges both create additional service costs for the customer, they are legally distinct terms for the business. Tips are gratuities customers voluntarily give employees, while service charges are amounts the business adds to the customer’s bill. Tip earnings are the property of the employee, while service charge earnings are the employer’s.

While you cannot keep tips, service charge earnings are all yours. You can allocate them however you like, including to cover labor costs. However, if you give service charges to employees, they won’t legally count as tips.

Who qualifies as tipped employees in Oregon?

Oregon follows the FLSA definition, which states that a tipped employee is any employee who regularly and customarily earns at least $30 in tips per month. By regularly and customarily, they mean that the employee should belong in an occupation with a cultural expectation of tipping, which creates frequent opportunities to receive tips.

Examples of tipped employees include:

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

Can Oregon employers deduct credit card processing fees from tips?

Oregon law allows employers to deduct processing fees from employee tips paid via credit card. However, it protects workers’ earnings by placing strict limits on deductions.

Deductions must match the actual processing rate

The amount you deduct from a credit card tip must reflect the actual percentage charged by the credit card company, or a lower amount. You cannot use the tip to cover the entire processing fee.

For example, let’s say a customer submits a credit card payment worth $100, and gives $10 from that amount to the employee. If the credit card processor charges a 2% fee, you can only deduct 2% of $10, not 2% of $100. This means you can deduct 20 cents from the employee, leaving them with a tip worth $9.80.

No additional deductions

You cannot subtract anything beyond the card processing fee. That means you cannot take administrative charges, handling costs, or other deductions from the tip.

Keep accurate records

Oregon employers must maintain clear records of all credit card tips received and any related deductions. These records help ensure transparency and support compliance if questions arise during a wage or labor audit.

Minimum wage and tip credit in Oregon

Type of rate	Areas	Rate
Portland Metro	Within the urban growth boundary, including parts of Clackamas, Multnomah, and Washington Counties	$16.30 per hour
Standard	Benton, Clatsop, Columbia, Deschutes, Hood River, Jackson, Josephine, Lane, Lincoln, Linn, Marion, Polk, Tillamook, Wasco, Yamhill, and parts of Clackamas, Multnomah, & Washington outside the urban growth boundary.	$15.05 per hour
Non-urban	Baker, Coos, Crook, Curry, Douglas, Gilliam, Grant, Harney, Jefferson, Klamath, Lake, Malheur, Morrow, Sherman, Umatilla, Union, Wallowa, and Wheeler Counties	$14.05 per hour

 

Because the cost of living varies by location, the minimum wage in Oregon differs by area. The state sets three different minimum wage rates: the standard rate ($15.05), the Portland Metro ($16.30) rate, and the rate for nonurban counties ($14.05).

The Portland Metro rate covers Oregon’s urban core and accounts for its higher cost of living. Meanwhile, the non-urban rate applies in Oregon’s rural areas, reflecting the lower cost of living. The standard rate applies to the remaining counties, serving as the middle ground between urban and rural.

Most states allow employers to count tips toward the minimum wage requirement. However, in Oregon, claiming tip credits is illegal. You need to pay all workers the full minimum wage no matter how many tips they receive from customers.

Tip pooling in Oregon

Tip pooling is legal in Oregon if you follow certain legal requirements. This arrangement allows employees to combine tips into one group fund until the end of a pay period, then divide shares based on factors like seniority, role, and hours worked. It exists to reward teamwork, improve service quality, and smooth out tip income discrepancies between frontline employees (such as servers and bartenders) and tipped support staff (such as bussers and food runners).

Oregon tip pooling rules

As mentioned, tip pools in Oregon must follow state and federal laws. These regulate employee participation, voluntary and mandatory tip pooling, notices, and distributions.

Eligible participants

Under the FLSA, employers may not include non-tipped staff in tip pool arrangements if the establishment claims tip credit. This rule exists to prevent employers from diverting income from employees who make reduced base wages.

However, because tip credit is illegal in Oregon, its rules for tip pooling are more relaxed. According to the FLSA, employers who pay at least the full minimum wage without claiming any tip credits may include non-tipped employees, such as cooks and dishwashers, to participate in tip pooling.

 

The only exceptions are managers and supervisors, who may never participate in tip pools under any circumstances. Their authority over employees increases the risk of skewed distribution agreements. For example, employees may be too scared of losing employment or facing penalties to argue against any tip pool terms their manager proposes.

Notice requirements

In Oregon, employers must give employees written or verbal notice of tip pooling arrangements in advance. This allows employees time to review contribution and distribution terms, and negotiate when they see fit. Tip pool notices should include the following information:

• How will you distribute tips
• Who will participate in the tip pool

Distribution schedule

Oregon law requires employers to pay out tip pool shares as often as each regular payday. This gives employees faster access to the tips they earn. If you delay tip pool distribution, you could face wage claims, penalties, back pay, or investigations.

Voluntary vs. mandatory tip pooling

Like most states, Oregon allows mandatory tip pooling. However, if you want to make tip pooling a requirement, you need to follow the state and federal rules listed above. The most important rule to remember is that you need to inform your employees about tip pool arrangements in advance. If you enforce a tip pool without prior notice, it will not be considered valid, and you will need to pay back your employees for the affected pay period.

Consequences of violating tip laws in Oregon

To protect your business from fines, employee complaints, and public backlash, you must follow both state and federal wage laws carefully. Violating Oregon tip laws exposes you to potential financial penalties, legal action, and reputational harm.

Wage claims

Employees harmed by tip law violations have the right to file wage claims with the Oregon Bureau of Labor & Industries (BOLI) or the U.S. Department of Labor Wage and Hour Division. If their claims are successful, you may need to pay them remedies, such as:

• Back pay: The wages you failed to pay during the affected pay periods.
• Liquidated damages: Compensation amounting to equal or greater than the unpaid wages.

Typically, employees file wage claims when employers commit the following violations:

• Improperly retaining tips
• Allowing managers or supervisors to participate in tip pools
• Failing to pay the full minimum wage due to tip mismanagement
• Delaying tip payouts

Lawsuits

Sometimes, when the case is too big for BOLI or DOL to handle, employees file legal action in court. This typically happens when there are multiple affected employees or the employees seek bigger remedies. Similar to wage claims, successful lawsuits may entitle employees to back pay, liquidated damages, and even attorneys’ fees.

Civil penalties

The DOL may impose civil penalties of over $1,000 per violation for repeated or willful tip law noncompliance. Employers who routinely include managers in tip pools or fail to inform employees about tip credit use face a higher risk of these fines.

Reputational harm

Establishments that violate tip laws often take hits to their reputations. Repeated violations often cause employees to leave and share their experience with potential candidates in the local government. Others turn to social media or review websites. In serious cases, especially if the business is high profile, the story can attract attention from local or even national news outlets.

Harm to employees

Tip law violations often hurt employees more than employers. When you fail to report tip income properly, your team may face serious financial setbacks and legal complications.

• Financial institution issues: Inaccurate reporting can make it seem like employees earn less than they do. This can create barriers when they apply for loans, credit cards, or mortgages. Without complete tax records, they may struggle to prove their income to lenders.
• IRS problems: If employees don’t report all their income, they could owe back taxes, interest, and penalties. In some cases, they may even face IRS audits.
• Retirement benefits: Social Security and Medicare rely on payroll taxes. When tip income goes unreported, employees contribute less over time, which can lower their future retirement benefits.
• Unemployment benefits: Oregon calculates unemployment benefits based on reported wages. If tip income isn’t accurately recorded, former employees may receive smaller checks.

Save hours with 7shifts

Managing tips in Oregon does not have to be a chore. With the right tools, you can simplify your processes and reclaim time for core business activities. 7shifts’ tip management software eliminates manual tasks by automating tip pool calculations and share distributions. It also provides real-time visibility on owed tips, increasing transparency across the organization.