Delivery driver tips: who keeps them, and how a restaurant pays them out
Updated October 20, 2026
Tips belong to the delivery driver. Under the Fair Labor Standards Act, an employer "may not keep tips received by its employees for any purposes", whether or not it takes a tip credit. A delivery fee is not a tip: a compulsory charge is the restaurant's money, and if you share it with drivers it counts as wages, not tips. So label the two clearly at checkout, pass card tips to drivers in full (you may deduct only the card fee's share), and record tips for payroll tax.
In short
- The driver keeps every tip. Managers and owners can't take a share (29 U.S.C. 203(m)(2)(B)).
- Delivery fee ≠ tip. A compulsory charge is not a tip (29 CFR 531.55). Tell customers which is which. In New York, an extra charge can be presumed a gratuity unless you make clear it isn't.
- Card tips: you may reduce a card tip by no more than the card fee on that tip, about 13¢ on a $3.50 tip at Stripe's US rate (worked example below).
- Tip credit: federally, a cash wage as low as $2.13 an hour if tips make up the rest. Seven states don't allow it, including California and Washington.
- Tax: drivers report cash tips of $20 or more a month to you by the 10th of the next month; you withhold and pay payroll taxes on reported tips and show them on the W-2.
Is a delivery fee a tip?
No. The rules treat a charge the customer must pay differently from money the customer chooses to give.
| Delivery fee (or service charge) | Tip | |
|---|---|---|
| Who decides | You set it; the customer must pay it | The customer chooses whether and how much |
| Whose money | The restaurant's | The driver's |
| If you give it to drivers | It counts as wages, and can count toward minimum wage | Must go to the driver (or a valid tip pool) |
| Federal rule | "A compulsory charge for service … is not a tip" (29 CFR 531.55) | Employer may not keep it (FLSA §3(m)(2)(B)) |
| IRS | Service charges paid to employees are generally wages | Tips are tips: reported by the employee |
New York: the state's hospitality wage order says there's a "rebuttable presumption" that any charge beyond food, drink and other specified goods or services, including a charge for "service", is a charge purported to be a gratuity, which must go in full to the workers (12 NYCRR 146-2.18). If you charge a delivery fee in New York and keep it, ask an employment lawyer how to word and display it.
Wherever you are: name the fee "Delivery fee", say it goes to the restaurant if that's the case, and keep a separate tip line. Then customers know the fee doesn't go to the driver.
How do I pay card tips to delivery drivers?
Pay them in cash at the end of the shift or with the next paycheck, as your state allows, and keep a record per driver and per order. You may pass on the card processing cost for the tip, but no more than that.
Worked example: a $3.50 tip on a card order
A customer pays $35.00 for food plus a $3.50 tip online. Stripe's standard US card fee is 2.9% + 30¢.
| Line | Amount |
|---|---|
| Card charge (food + tip) | $38.50 |
| Stripe fee: 2.9% × $38.50 + $0.30 | $1.42 |
| The tip's share of that fee: $1.42 × $3.50 ÷ $38.50 | $0.13 |
| Most you may deduct from the driver's tip | $0.13 |
| Driver receives | $3.37 (or $3.50 if you absorb the fee) |
Over a week of 40 such tips ($140), the deduction would come to about $5.20. You can also absorb it: it's small, and deducting it needs a record per tip. Some states set stricter rules than the federal one. Check your state before you deduct anything.
Can I pay delivery drivers less because they get tips?
Federally, yes, with conditions. Under the tip credit, you can pay a cash wage as low as $2.13 an hour and count up to $5.12 of tips toward the $7.25 federal minimum, if:
- you tell the driver about the tip credit before you use it;
- the driver keeps all their tips (except a valid tip pool); and
- you top up any hour where cash wage plus tips falls short of the minimum.
Seven states don't allow a tip credit and require the full state minimum before tips: Alaska, California, Minnesota, Montana (most businesses), Nevada, Oregon and Washington. Other states set their own cash wage. And tips never replace mileage: car costs your drivers carry for you can't push their pay below the minimum. See how to pay delivery drivers.
Can delivery drivers share tips with the kitchen?
It depends on whether you take a tip credit (Department of Labor Fact Sheet #15):
- You take a tip credit: a mandatory tip pool may include only employees who customarily and regularly receive tips, such as drivers and servers. Not cooks or dishwashers.
- You don't take a tip credit (you pay at least the full minimum wage in cash): a mandatory pool may include back-of-house staff such as cooks and dishwashers.
- Either way: managers, supervisors and owners can't take from the pool.
To split a pool by hours or points, try the free tip pooling calculator.
How are delivery driver tips taxed?
- Drivers report cash tips to you. An employee who gets $20 or more in tips from you in a calendar month reports them by the 10th of the following month. No particular IRS form is required; the report needs the employee's details, the period and the total.
- You withhold and pay. Withhold income tax and the employee's Social Security and Medicare on wages plus reported tips, and pay the employer's share on both.
- On the W-2, reported tips go in boxes 1, 5 and 7. The IRS also lists the total cash tips under code TP in box 12, and the tipped occupation code in box 14b.
- The new tips deduction (2025 to 2028). Workers in a listed tipped occupation may deduct up to $25,000 of qualified tips on their federal income tax return, phasing out above $150,000 of income ($300,000 joint). The IRS list includes "Goods delivery people" (code 804), described as drivers who deliver goods "such as food products". Only tips shown on the W-2 (or reported by the worker on Form 4137) count, so your records matter; the driver claims the deduction, not you.
How Menuthere handles tips
- Tips at checkout (every plan, off until you switch them on): in Settings → Payments & tax → Tips & service charge, choose up to four percentages (10%, 15% and 20% to start) and allow a custom amount. No tip is selected until the customer picks one. A percentage is worked out on the food total after discounts, and a custom tip is capped at that total.
- The tip is its own line on the checkout bill, the customer's order page, printed bills and the order screen, separate from your delivery charge, so customers can see which is which.
- Tips are never taxed in Menuthere's bill maths, and they're paid with the rest of the order into your own Stripe account.
- Pick the order types that get the tip option, for example delivery only.
What Menuthere doesn't do: it doesn't pay tips out to drivers, split them, or total them per driver. Use your order history and payroll to pass each driver their tips. Set-up steps: tips and service charge.
Add a clear tip line and a separate delivery fee at checkout. Plans:.
More own-delivery guides: hiring drivers, job description template, driver pay and mileage, insurance, employees or contractors, delivery radius and zones, keeping food hot. The overview with costs: in-house delivery for restaurants.
Frequently asked questions
Do pizza delivery drivers get to keep their tips?
Yes. Under federal law an employer may not keep any part of its employees' tips, and managers and owners can't take a share. The only exception is a valid tip pool with other employees, under the Department of Labor's rules.
Is the delivery fee the same as a tip?
No. A delivery fee the customer must pay is the restaurant's money, and the federal rules say a compulsory charge is not a tip. If you pass it to drivers, it counts as wages. Show the delivery fee and the tip as separate lines so customers know the difference.
Can a restaurant take a credit card fee out of a driver's tip?
Federally, yes, but only the card fee on the tip itself. On a $3.50 tip within a $38.50 card payment at 2.9% plus 30 cents, that's about 13 cents. Some states are stricter, so check yours first.
Can I pay delivery drivers $2.13 an hour?
Only where the state allows a tip credit, and only if you tell drivers about it, they keep all their tips, and tips bring every hour up to the minimum wage. Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington require the full state minimum before tips.
Do delivery drivers have to report their tips?
Yes. A driver who gets $20 or more in tips from you in a month reports them to you by the 10th of the next month. You include reported tips in payroll tax and on the W-2. From 2025 to 2028, drivers may be able to deduct up to $25,000 of qualified tips on their federal income tax return.
Sources (10)
- 29 U.S.C. 203(m)(2)(B): https://www.law.cornell.edu/uscode/text/29/203 (read 20 Oct 2026): "An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees' tips, regardless of whether or not the employer takes a tip credit."
- 29 CFR 531.55: https://www.law.cornell.edu/cfr/text/29/531.55 (read 20 Oct 2026): "A compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a customer … is not a tip"; sums distributed to employees "may be used in their entirety" toward wage obligations.
- U.S. Department of Labor, Fact Sheet #15: Tipped Employees Under the FLSA: https://www.dol.gov/agencies/whd/fact-sheets/15-tipped-employees-flsa (read 20 Oct 2026): employers may not keep tips; cash wage $2.13, max tip credit $5.12, notice before taking the credit; "the employer cannot reduce the amount of tips paid to the employee by any amount greater than the transactional fee"; "A compulsory charge for service, for example, 15 percent of the bill, is not considered a tip"; tip pool rules with and without a tip credit; managers/supervisors excluded.
- U.S. Department of Labor, Minimum Wages for Tipped Employees: https://www.dol.gov/agencies/whd/state/minimum-wage/tipped (last updated July 1, 2026; read 20 Oct 2026): full minimum before tips in AK, CA, Guam, MN, MT (gross sales over $110,000), NV, OR, WA.
- 12 NYCRR 146-2.18: https://www.law.cornell.edu/regulations/new-york/12-NYCRR-146-2.18 (read 20 Oct 2026): "There shall be a rebuttable presumption that any charge in addition to charges for food, beverage, lodging, and other specified materials or services, including but not limited to any charge for "service" or "food service," is a charge purported to be a gratuity."; (a) must be distributed in full.
- IRS, Tip recordkeeping and reporting: https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting (read 20 Oct 2026): report by "the 10th day of the month after the month the tips are received" unless under $20 for the month; "No particular IRS form must be used"; employer withholding and share; W-2 boxes 1, 5, 7, box 12 code TP, box 14b tipped occupation code; service charges distributed to employees "are generally treated as wages".
- IRS, One, Big, Beautiful Bill: How to take advantage of no tax on tips and overtime (Tax Tip 2026-06, 26 Jan 2026): https://www.irs.gov/newsroom/one-big-beautiful-bill-how-to-take-advantage-of-no-tax-on-tips-and-overtime (read 20 Oct 2026): "Maximum annual deduction is $25,000"; phase-out above $150,000 ($300,000 joint); qualified tips = "voluntary cash or charged tips received from customers or through tip sharing". Years 2025–2028 from the IRS employer guidance found by search (irs.gov, 20 Oct 2026) and the Treasury final regulations release.
- IRS, Occupations that customarily and regularly received tips on or before Dec. 31, 2024: https://www.irs.gov/forms-pubs/occupations-that-customarily-and-regularly-received-tips-on-or-before-dec-31-2024 (read 20 Oct 2026): 804 "Goods delivery people": "Drive truck or other vehicle to deliver goods, such as food products, appliances, or furniture".
- Stripe US standard card pricing 2.9% + 30¢: taken from Stripe's US support/pricing pages as recorded in Wave 1 (stripe.com geo-redirects to India from this machine; see
wave1/INTEGRATION-NOTES.md). - Worked example, Python: 0.029 × 38.50 + 0.30 = $1.4165; × 3.50 ÷ 38.50 = $0.1288 → $0.13; 40 × $0.13 = $5.20.