Kentucky 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 Kentucky.

When Were the Tip Laws Last Updated in Kentucky?

Tip laws in Illinois were updated in July 2022.

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

Kentucky has some tip laws that differ from federal tip laws, but the tipped minimum wage in the state aligns with the federal standard of $2.13 per hour as long as the employee receives $30 or more per month regularly in tips.

Who Holds the Ownership of Tips in Kentucky?

Under state law, any gratuities paid to employees are their property. Employers are not permitted to require employees to hand in their tips, although they are allowed to count the tip toward the hourly rate.

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

There is no law determining when credit card tips must be distributed to tipped employees.

What are the Tip Pooling Rules in Kentucky?

Employers in Kentucky may not require employees to participate in tip pools under KRS Chapter 337. However, an employee may choose to participate in one voluntarily.

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

Tipped employees may choose to voluntarily participate in tip pools. The one exclusion is a salaried manager.

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

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 Kentucky?

The law does not restrict employers from deducting any credit card processing fees from employee tips.

Do Tips Count Toward the Minimum Wage in Kentucky?

Yes, the tip credit can count toward minimum wage.

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

Any eligible employee working over 40 hours in a week should receive overtime pay (1.5 times their normal hourly wage). However, a tipped employee’s overtime wage is based on the state amount, not the hourly rate that includes a tip credit.

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

No, there are currently no cities or municipalities with differing tip or service charge rules.

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

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 Kentucky?

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

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

Violating Kentucky tip laws can subject an employer to a penalty of between $100 and $1,000 per violation. Civil penalties and legal fees may also apply.

Managing the regulations associated with tips in Kentucky 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.

KRS Chapter 337 (mandatory tip pool restrictions)