Arizona Tip Laws

Under the Fair Labor Standards Act (FLSA), tips are regulated. Employers who meet certain criteria are permitted to take a partial credit against minimum wage obligations for tipped employees. Tipped employees includes those engaged in jobs in which they regularly and customarily receive tips.

The tip credit was created by Congress in 1966, and adjustments occurred on December 28, 2021, when the 2021 Dual Jobs Final Rule went into effect. A federal court vacated portions of the final rule in October 2024, which effectively reinstated the original dual jobs regulation (29 C.F.R.531.56(e). It recognizes that an employee may work in tipped and non-tipped occupations, and employers are only permitted to take the tip credit against minimum wage obligations for hours worked in the tipped occupation.

The FLSA mandates that a tipped worker must be paid at least $2.13 per hour. The FLSA tip credit can be equal to the different between the direct (or cash) wage paid to the employee and the federal minimum wage. Only tips actually received by an employee count when making the determination of a tipped employee and applying the credit.

The FLSA also permits employees to “pool” or share tips with other eligible employees, although it doesn’t impose a limit on the amount or percentage of the contribution of each employee in a valid tip pool.

State law may differ from the federal FLSA standards. Review what tip laws apply in Arizona.

When Were the Tip Laws Last Updated in Arizona?

Tip laws in Arizona were updated in 2016.

Does Arizona Have Tip Laws That Differ from Federal Tip Laws?

Yes, Arizona has laws in place that differ from the regulations under the FLSA. The state minimum wage is higher than the federal minimum wage, and state law permits employees to apply up to $3 per hour in tip credit.

An amendment to the law was proposed in 2024, which would have allowed employers to use a tip credit of up to 25% of the minimum hourly wage, but voters did not pass it in the November 2024 election.

Who Holds the Ownership of Tips in Arizona?

Any gratuities paid to employees are their property. Employers are not permitted to keep tips.

What are the Rules for Distribution of Credit Card Processing Tips in Arizona?

A tip given to an employee must be paid out by the end of the pay period during which it was paid.

What are the Tip Pooling Rules in Arizona?

Employers in Arizona are allowed to establish mandatory tip pools. Eligible employees share a portion of their tips, which are distributed among the group. Employers who choose to set up tip pools must keep all eligible staff members informed about the arrangements.

Who Can and Can’t Participate in Tip Pools in Arizona?

Waitstaff, service employees, and service bartenders are allowed to participate in tip pools. Supervisors/managers and owners may not.

Is there a Difference Between Tips and Service Charges in Arizona?

Yes, a mandatory service charge is not considered a tip. Therefore, it would belong to the employer.

To be considered a tip instead of a service charge, a customer must give money voluntarily in an amount of their own choosing. The customer must also be able to determine who receives it, and it can’t be set by employer policy.

Can Employers Deduct Credit Card Fees from Tips in Arizona?

Arizona employers are not allowed to deduct credit card fees from tips unless an employee has given written consent.

Do Tips Count Toward the Minimum Wage in Arizona?

Yes, the tip credit can count toward minimum wage.

Do Tips Factor Into Regular Rate Calculations for Overtime Pay in Arizona?

Any eligible employee working over 40 hours in a week should receive overtime pay (1.5 times their normal hourly wage). The tip credit can be applied to the overtime hourly rate.

Are There Cities and Municipalities in Arizona That Have Their Own Tip and Service Charge Rules That Differ from Statewide Laws?

Some cities and municipalities in Arizona have minimum hourly wages that are higher than the state wage. In this case, an employer must pay an employee the higher rate, although the tip credit may still be applied, as it is a statewide law.

What Are the Record-Keeping Requirements for Employers Regarding Tips in Arizona?

Employers must keep detailed records of all tips reported by employees, including amounts and dates of service. If tip pooling is in effect, the record should also include the arrangements and the distribution of tips to eligible staff members.

What Options Do Employees Have for Remuneration if Their Tips are Withheld in Arizona?

An employee may take legal action against an employer who violates state tip laws.

What are the Penalties for Employers for Not Complying with Arizona Tip Laws?

Violating Arizona tip laws can subject an employer to a minimum fine of $250 (first violation) and $1,000 for subsequent or willful violations. Employers may also be held liable for three times the amount of service charges and tips owed to employees and any applicable attorney’s fees and interest. The statute of limitations for penalties being imposed is two years after the last violation occurred (although willful violations have an additional year).

Managing the regulations associated with tips in Arizona can be a challenge. But with WorkforceHub, your business can ensure accuracy. The numerical clock prompt feature allows the employee to input their received tips at the end of the shift, and that information would be available for reporting and payroll processing. Explore our selection of time clocks to find what works for your business.

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