Tip your budtender?

Allowing tips can be a great way to increase employees’ take-home pay, but companies need to know the laws regarding tip pooling and minimum wage



Tipping budtendors

Tipping has always been a standard practice in the service industry. It allows customers to express gratitude to servers and rewards those who provide excellent service. And from an employer’s perspective, encouraging customer tipping is an excellent way to augment employees’ wages without incurring additional operating costs.

But paying employees in tips imposes its own set of legal challenges. Cannabis retailers must watch out for tipping requirements under wage laws and also the ever-changing state-specific cannabis regulations. Here are a few of the legal considerations to keep in mind before placing that tip jar on your retail counter.

Tip Pools

Tip pooling is when all tips earned in a particular shift are divided proportionately among the staff who worked the shift. This practice has recently come under fire, particularly in the Western United States, where employers are bound by a recent 9th Circuit Court decision that prohibits some types of employees from participating in an employee tip pool.


In March 2016, the court upheld a 2011 U.S. Department of Labor rule that prohibits any worker who is not qualified as a “customarily tipped employee” from sharing in the tip pool. The lower court previously struck down the Department of Labor rule, but now states in the 9th Circuit (Alaska, Washington, Oregon, Idaho, Montana, California, Nevada, Arizona and Hawaii) must follow it because of the court decision. Thus, only employees who “customarily and regularly” receive tips can participate in a tip pool. For example, a valid tip pool can include employees such as waiters, waitresses, bellhops, counter personnel (who serve customers), bussers and bartenders, but it cannot include employees such as dishwashers, cooks, chefs and janitors. It’s also relevant who the customer intended to tip, because tips are the property of the employee who receives them.

This rule poses an interesting challenge to cannabis retailers: Who qualifies as a “customarily tipped employee” in a newly emerging industry? Cashiers and budtenders with direct customer contact probably qualify as customarily tipped employees since their role and function with the store is to provide customer service, akin to that of a waiter or barista.

The Department of Labor’s rule also likely requires businesses to examine if customers have a clear understanding of who will be sharing the tips when they give them. For example, do customers understand that leaving money in a tip jar means that all staff shares the tips, or would customers reasonably believe they are only tipping the particular budtender who waited on them? “Back-of-the-house” employees who do not perform any retail sale duties plainly do not qualify. This includes accountants, managers, stockroom workers, janitors and others who do not have customer interactions at the point of sale.

Other positions may be more difficult to assess. For example, what about security guards — those who may be responsible for monitoring lines and moving customers through the store? One court in Tennessee tried to answer this question in Stewart v. CUS Nashville, LLC, also known as the Coyote Ugly case. The Coyote Ugly bartenders sued the establishment, arguing that the bar unlawfully allowed security staff to participate in the tip pool. The court dismissed the suit, and held that the bar’s bouncers had sufficient face time with customers to be considered “regularly and customarily tipped” employees who were eligible to participate in the tip pool. The judge noted that, apart from providing security, Coyote Ugly bouncers “play a prominent role in enhancing the customer experience” by doing everything from greeting customers at the door to flirting and taking pictures with female customers.

Elevation Crew

“Security guards employ several methods to draw people into the saloon,” the judge explained. “For instance, they would dance, sing, wear wigs or silly outfits, joke, and use funny slogans (‘hot beer, cold women’).”

The court viewed this type of customer interaction as sufficient to qualify the security guards for the tip pool. The case demonstrates a guiding principle for cannabis retailers: In determining whether an employee qualifies as a customarily tipped employee, it is important to examine the amount and degree of interaction that the employee has with customers in making a retail sale.


State Laws

In addition to federal regulations on tip pooling, employers must also examine if there are any state law prohibitions, or regulations specific to cannabis enterprises.

– Washington: In Washington state, employers cannot take a credit for tips paid against minimum wage owed under federal or Seattle law. All workers must be paid at least minimum wage regardless of tips earned.

Washington’s cannabis retail stores were initially prohibited from accepting any customer tips. The Washington State Liquor and Cannabis Board banned the practice, explaining that the state’s cannabis statute (RCW 69.50.357) prohibited retailers from manipulating the price of products to avoid paying excise tax. The Liquor and Cannabis Board viewed tips as one way retailers were trying to circumvent their excise tax obligations.

However, in March 2016, the Liquor and Cannabis Board officially reversed its position, explaining that customer tipping is allowable so long as the tips were not “required or a condition of sale” and that they were not “linked to the price of the product to avoid tax obligations.”

In short, the Liquor and Cannabis Board’s position remains (for now) that so long as customer tips remain discretionary, accepting tips is allowed. Just don’t forget that employees are still subject to the regular state and federal income tax reporting requirements for their tips.

Slater - Wide shot of sales floor

– Oregon: Similar to Washington, Oregon does not allow employers to use a tip credit against minimum wage obligations, and the state generally permits cannabis employees to accept tips. The Oregon Liquor Control Commission has not expressly prohibited budtenders or other retail employees from accepting tips, so as long as employers comply with federal tip pooling restrictions, the practice is likely permissible in Oregon.

– Colorado: Colorado’s cannabis industry regulators have not taken any official position on accepting tips in a retail setting. But unlike Oregon and Washington, Colorado state law does allow employers to use tip credits to offset their minimum wage obligations.

In Colorado, employers can pay their customarily tipped employees a tipped minimum wage of $5.29 per hour, and use a tip credit to meet their $8.31 per hour state minimum wage requirement. In order to qualify for a tip credit, certain conditions for payment, notice and reporting must be met under both state and federal law, so businesses should seek legal counsel before assuming they have met the requirements.

Alaska: The Alaska Alcohol and Marijuana Control Office has only just started issuing marijuana business licenses, and its specific enforcement policies remain somewhat unclear. However, Alaska does not allow tip credits, meaning employers must pay the full state minimum wage for tipped employees.

Of course, Alaskan employers must also follow the federal tip pooling limits mentioned above. Otherwise, there are, at present, no other restrictions under Alaska’s marijuana ordinance or regulation that would prohibit employees from accepting tips. However, as the retail industry is new in this state, business owners should stay current on any enforcement notices or new regulations.


Owner Brie Malarkey shows products to a patient at one of two Breeze Botanicals locations in Southern Oregon.


Tipping may make sense for many retail businesses in the cannabis industry. It allows employees to substantially increase their take-home pay, and in states where employers are able to take a tip credit, it could significantly reduce labor costs.

Employees likely take pride in being acknowledged for great customer service. However, businesses must make sure that they are complying with both federal and state minimum wage requirements, as well as state cannabis regulations.


Rochelle Nelson is an associate attorney in Fisher & Phillips’ Seattle office. Her practice covers all aspects of employment law, including wage and hour, employee drug-testing and reasonable accommodations, from complex class litigation to providing management training and compliance advice for startup businesses. She can be contacted at rnelson@fisherphillips.com.


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