Colorado 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 Colorado.

When Were the Tip Laws Last Updated in Colorado?

The most recent update to Colorado tip laws occurred in December of 2023.

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

Yes, Colorado tip laws differ from the federal requirements. The state minimum wage is higher than the federal wage, and certain rules apply to support staff and what qualifies as a tip.

Who Holds the Ownership of Tips in Colorado?

Any tip (or money voluntarily left by a customer that exceeds the total sum of the bill and applicable sales tax) belongs to the employee for whom it was left. Employers do not own tips.

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

Under the law, tips must be distributed to employees in a timely fashion, including those paid by credit card. This concept has been interpreted to mean no later than the employee’s next paycheck.

What are the Tip Pooling Rules in Colorado?

Employers in Colorado are permitted to mandate a tip pool arrangement, which shares tips between all eligible employees. Those who choose to do so must notify customers in writing of that requirement.

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

Under COMP #39, a tipped employee is anyone working in the state who earns more than $1.64 per hour in tips (on average over a pay period). Anyone who meets this requirement is eligible to participate in a tip pool, regardless of if they receive tips directly from customers. The amendment to this rule now includes servers, counter personnel serving customers, bussers, bartender assistants/barbacks, bellhops, teppanyaki or sushi chefs, and sommeliers.

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

Yes, Colorado law does not consider service charges to be tips. This aligns with the federal tip law. However, the law does require any business issuing service charges to post a notice stating whether the money goes to the employee. If no notice is in place, the business is required to distribute service charges to tipped employees.

Can Employers Deduct Credit Card Fees from Tips in Colorado?

No, employers are not allowed to deduct credit card fees from tips.

Do Tips Count Toward the Minimum Wage in Colorado?

Yes, Colorado law allows a tip credit of $3.02 per hour among employers that do not use mandatory tip pools and share tips with non-tipped staff. This means an employer can pay that much less than the state minimum wage, as long as the sum of the wage and tips are at least the minimum.

Employers using the tip credit must ensure that every employee earns at least minimum wage after factoring in the credit.

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

The state overtime rules for tipped employees align with federal standards. Employees must be paid time-and-a-half for overtime hours, but the tip credit may be applied.

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

Yes, some cities and municipalities in Colorado have additional rules in place. Boulder, Edgewater, and Denver County limits tip credits to food and beverage workers. Denver also taxes any mandatory tips, although if they are issued to the service staff, state tax may not apply.

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

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 Colorado?

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

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

The penalty depends on whether the violation was willful. A willful violation results in a penalty of $3,000 or three times the owed wages (whichever is greater). A non-willful violation results in a penalty of $1,000 or double the wages owed (whichever is greater).

If an employer pays the penalty within 14 days, they may be eligible for a reduction of up to 50% of the total amount owed. Additionally, an increase of $3,000 or 50% of the total amount owed may be imposed on an employer who fails to pay within 60 days.

Managing the regulations associated with tips in Colorado 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.

Colorado INFO #3C

COMP #39