Tipped wages and tip credits

A server in one state may be paid $2.13 an hour by the employer and the rest in tips; in another state the employer must pay the full minimum wage before any tip. Both arrangements are lawful under the rules summarized here, which are the ones behind the tipped columns on the minimum wage pages.

The federal tip credit

The Fair Labor Standards Act lets an employer count part of an employee’s tips toward the minimum wage. The employer must pay a cash wage of at least $2.13 an hour, and tips must make up the difference to the federal minimum of $7.25. The difference, up to $5.12, is the tip credit. If tips in a workweek fall short, the employer must pay the shortfall; the employee must always receive at least the full minimum wage counting cash and tips together.

The $2.13 figure has not changed since 1996, when the amendments that raised the minimum wage froze the cash wage at its then level instead of keeping it at half the minimum. Every federal increase since has widened the tip credit rather than raised the cash wage.

Who is a tipped employee

Under the statute, a tipped employee is one engaged in an occupation in which they customarily and regularly receive more than $30 a month in tips. The threshold has not been updated since 1977. States that allow a tip credit often set their own definition; DOL’s table shows “more than $30,” “more than $20,” a monthly dollar amount, or “not specified” for each.

Conditions on taking the credit

DOL’s fact sheet lists what an employer must do to claim the credit: tell the employee in advance the cash wage, the amount of the credit, that the credit cannot exceed tips actually received, and that tips belong to the employee except in a valid tip pool. Tips are the employee’s property; since a 2018 amendment the law states that employers, managers and supervisors may not keep any portion of employees’ tips, whether or not a credit is taken. Mandatory service charges are not tips. Where a credit card fee is deducted from tips, it may not reduce the wage below the minimum.

How states vary

DOL’s tipped table sorts states into three groups, which the state pages here reproduce. Seven states (Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington) and Guam require the full state minimum wage in cash before tips, with no credit. A second group requires a cash wage above $2.13 but below the full minimum, with the credit making up the rest; most states with a minimum wage above the federal rate are here, and several define the cash wage as a percentage of the minimum. A third group requires only the federal $2.13; it includes the states with no minimum wage law and some with one.

Within the second group the detail varies: Connecticut sets different cash wages for hotel and restaurant staff and for bartenders; Montana’s and Ohio’s depend on the employer’s receipts; New York’s vary by region and type of employer and DOL refers readers to the state. The state pages print these cells as DOL prints them.

What the figures on this site are

Each state page shows the combined minimum, the maximum tip credit, the minimum cash wage and the tipped-employee definition from DOL’s table, with the revision date DOL prints and the date this site verified it. Where DOL writes a percentage, the page shows the percentage and the dollar amount DOL gives beside it. Nothing is computed here; in particular the site does not subtract a cash wage from a minimum to produce a credit DOL did not print.

What is not covered

The rules for employees who split time between tipped and untipped duties, the treatment of tip pools that include back-of-house staff, and the many state-specific notice and record requirements are beyond a summary. DOL’s fact sheet and the state labor office are the sources for those, and the sister site FastGuide covers how to raise a claim. For what tipped occupations actually earn including tips, the occupation pages for waiters and waitresses and for bartenders show the OEWS distribution, which counts tips as wages.