Minimum Wage For Employees Who Earn Tips

Complying with minimum wage laws can be complicated if your employees regularly earn tips on the job.

There are a variety of separate federal and state rules that depend on several different factors.

In this article, we’ll discuss how minimum wage regulations for tipped employees differ based on several of these major factors, such as your location, company size, and industry.

Key Takeaways:

• According to federal law a tipped employee is any worker who customarily and regularly receives at least $30 per month in tips.

• Federal law dictates a minimum basic cash wage of $2.13 per hour for tipped employees.

• Tipped credit is the maximum amount that employers are allowed to count towards their employees’ total tipped minimum wage.

• States have various law regarding tipped minimum wage, but the basic cash wage combined with the tipped credit must be at least the federal minimum wage of $7.25 an hour or the state’s minimum wage (whichever is higher).

Definition Of A Tipped Employee

There are separate federal and state laws that define what workers are considered tipped employees. These are:

• Federal law. A tipped employee is any worker who customarily and regularly receives at least $30 per month in tips.

• State laws. A number of states have set a lower monthly tip requirement of $20 for classifying tipped employees.

  These states are:

  • Texas

  • North Carolina

  • Kentucky

  • Kansas

  • Massachusetts

  • Illinois

  • Hawaii

  • Arkansas

  Some states also follow higher requirements:

  • Alabama. $35 per month.

  • Vermont. $120 per month.

  • Connecticut. $10 per week.

Regardless of how tipped employee is defined, the employees wages must be calculated so that the employee makes at least the federal minimum wage or state minimum wage.

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How Tipped Minimum Wage is Calculated

Each state sets its own tipped minimum wage that employers must pay all employees classified as tipped workers.

Tipped minimum wage is comprised of:

• Basic cash wage. The minimum wage that employers must pay directly to employees, regardless of how much they earn in tips.

  Federal law dictates a minimum basic cash wage of $2.13 per hour, as of January 11, 2021. The total tipped minimum wage is $7.25.

  If a state also has its own minimum, the higher wage between the two takes precedence.

• Tip credit. Each state sets a certain tip credit cap. This is the maximum amount that employers are allowed to count towards their employees’ total tipped minimum wage.

  For example, consider a restaurant that has to follow a $15.00 tipped minimum wage, comprising a $10.00 minimum basic cash wage and $5.00 tip credit.

  If Joe, a tipped worker, earns $3.00 in hourly tips, the restaurant must supplement them with a cash wage of $12.00 in order to reach the $15.00 total minimum.

  If that same worker earns an average of $7.00 in tips per hour, the restaurant must still pay them $10.00, as only $5 of that $7 may contribute towards the tip credit.

States That Do Not Allow Tipped Minimum Wage

Seven states have laws that do not allow tipped minimum wage, meaning that tipped employees must be paid the state’s regular minimum wage before tips. Those states are:

• Alaska

• California

• Minnesota

• Montana

• Nevada

• Oregon

• Washington

Additionally, the following territories also do not allow tipped minimum wage and require all employees to be paid the minimum wage before tips. Those territories are:

• America Samoa

• Commonwealth of the Northern Mariana Islands

• Guam

Tipped Minimum Wage Laws By U.S. States And Territories

It’s important to stay aware of each state’s tipped minimum wage to ensure that your company is complying with all labor laws.

Here’s a simple breakdown of each state’s requirements in 2021. The following figures are taken from the United States Department of Labor’s State Labor Laws database:

• Federal level. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

• Alabama. Tipped minimum wage: None

  Minimum cash wage: $2.13
  Maximum tip credit: None

• Alaska. Tipped minimum wage: None

  Minimum cash wage: $10.34
  Maximum tip credit: None

• American Samoa. Tipped minimum wage: None

  Minimum cash wage: Special wage rates
  Maximum tip credit: None

• Arizona. Tipped minimum wage: $12.15

  Minimum cash wage: $9.15
  Maximum tip credit: $3.00

• Arkansas. Tipped minimum wage: $11.00

  Minimum cash wage: $2.63
  Maximum tip credit: $7.37

• California. Tipped minimum wage: None

  Minimum cash wage: $13.00 for small employers and $14.00 for large employers.
  Maximum tip credit: None

• Colorado. Tipped minimum wage: $12.32

  Minimum cash wage: $9.30
  Maximum tip credit: $3.02

• Connecticut. Tipped minimum wage: $12.00

  Minimum cash wage: $6.38 for hospitality workers and $8.23 for bartenders. None for all others.
  Maximum tip credit: $5.62 for hospitality workers and $3.77 for bartenders. None for all others.

• Delaware. Tipped minimum wage: $9.25

  Minimum cash wage: $2.23
  Maximum tip credit: $7.02

• District of Columbia. Tipped minimum wage: $15.00

  Minimum cash wage: $5.00
  Maximum tip credit: $10.00

• Florida. Tipped minimum wage: $8.65

  Minimum cash wage: $5.63
  Maximum tip credit: $3.02

• Guam. Tipped minimum wage: None

  Minimum cash wage: $8.25
  Maximum tip credit: None

• Georgia. Tipped minimum wage: None

  Minimum cash wage: $2.13
  Maximum tip credit: None

• Hawaii. Tipped minimum wage: $10.10

  Minimum cash wage: $9.35
  Maximum tip credit: $0.75

• Idaho. Tipped minimum wage: $7.25

  Minimum cash wage: $3.35
  Maximum tip credit: $3.90

• Illinois. Tipped minimum wage: $11.00

  Minimum cash wage: $6.60
  Maximum tip credit: Currently $4.40, but is always set at 40% of total tipped minimum wage.

• Indiana. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

• Iowa. Tipped minimum wage: $7.25

  Minimum cash wage: $4.35
  Maximum tip credit: $2.90

• Kansas. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

• Kentucky. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

• Louisiana. Tipped minimum wage: None

  Minimum cash wage: $2.13
  Maximum tip credit: None

• Maine. Tipped minimum wage: $12.15

  Minimum cash wage: $6.08
  Maximum tip credit: $6.07

• Maryland. Tipped minimum wage: $11.00

  Minimum cash wage: $3.63
  Maximum tip credit: $7.37

• Massachusetts. Tipped minimum wage: $13.50

  Minimum cash wage: $5.55
  Maximum tip credit: $7.95

• Michigan. Tipped minimum wage: $9.65

  Minimum cash wage: $3.67
  Maximum tip credit: $5.98

• Missouri. Tipped minimum wage: $10.30

  Minimum cash wage: $5.15
  Maximum tip credit: Currently $5.15, but is always set at 50% of total tipped minimum wage.

• Minnesota. Tipped minimum wage: None

  Minimum cash wage: $8.21 for small employers and $10.08 for large employers.
  Maximum tip credit: None

• Mississippi. Tipped minimum wage: None

  Minimum cash wage: $2.13
  Maximum tip credit: None

• Montana. Tipped minimum wage: None

  Minimum cash wage: $8.75 for businesses grossing annual sales over $110,000 and $4.00 for all others.
  Maximum tip credit: None

• Nebraska. Tipped minimum wage: $9.00

  Minimum cash wage: $2.13
  Maximum tip credit: $6.87

• Nevada. Tipped minimum wage: None

  Minimum cash wage: $7.25 for employers providing health insurance and $8.25 for all others.
  Maximum tip credit: None

• New Hampshire. Tipped minimum wage: $7.25

  Minimum cash wage: $3.26
  Maximum tip credit: $3.99

• New Jersey. Tipped minimum wage: $12.00

  Minimum cash wage: $4.13
  Maximum tip credit: $7.87

• New Mexico. Tipped minimum wage: $10.50

  Minimum cash wage: $2.55
  Maximum tip credit: $7.95

• New York. Tipped minimum wage: $12.50

  Minimum cash wage: $8.35 for food service workers, none for others.
  Maximum tip credit: $10.40 for food service workers, none for others.

• North Carolina. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

• North Dakota. Tipped minimum wage: $7.25

  Minimum cash wage: $4.86
  Maximum tip credit: Currently $2.39, but always set at 33% of total tipped minimum wage

• Commonwealth of the Northern Mariana Islands. Tipped minimum wage: None

  Minimum cash wage: $7.25
  Maximum tip credit: None

• Ohio. Tipped minimum wage: $8.80

  Minimum cash wage: $4.40
  Maximum tip credit: $4.40

• Oklahoma. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

• Oregon. Tipped minimum wage: None

  Minimum cash wage: $11.25
  Maximum tip credit: None

• Pennsylvania. Tipped minimum wage: $7.25

  Minimum cash wage: $2.83
  Maximum tip credit: $4.42

• Puerto Rico. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

• Rhode Island. Tipped minimum wage: $11.50

  Minimum cash wage: $3.89
  Maximum tip credit: $7.61

• South Carolina. Tipped minimum wage: None

  Minimum cash wage: $2.13
  Maximum tip credit: None

• South Dakota. Tipped minimum wage: $9.45

  Minimum cash wage: $4.725
  Maximum tip credit: $4.725

• Tennessee Tipped minimum wage: None

  Minimum cash wage: $2.13
  Maximum tip credit: None

• Texas. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

• Utah. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

• Vermont. Tipped minimum wage: $11.75

  Minimum cash wage: $5.875
  Maximum tip credit: $5.875

• Virginia. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

• The Virgin Islands. Tipped minimum wage: $10.40

  Minimum cash wage: $4.20
  Maximum tip credit: $6.30

• Washington. Tipped minimum wage: None

  Minimum cash wage: $13.69
  Maximum tip credit: None

• West Virginia. Tipped minimum wage: $8.75

  Minimum cash wage: $2.62
  Maximum tip credit: $6.13

• Wisconsin. Tipped minimum wage: $7.25

  Minimum cash wage: $2.33
  Maximum tip credit: $4.92

• Wyoming. Tipped minimum wage: $7.25

  Minimum cash wage: $2.13
  Maximum tip credit: $5.12

How to Determine You Classify As A Tipped Employee

The Fair Labor Standards Act (FLSA) dictates many additional laws regarding tipped employees that are lesser-known but still extremely important.

Here are a few major ones:

• Service charges. Compulsory service charges cannot be considered as tips and are instead part of the employer’s gross receipts.

  A common example is a restaurant dictating a 15% service charge for large groups.

  If employers pay their employees a percentage of a service charge, that sum is considered part of the employee’s cash wage rather than a tip.

• Salaries and stipends. Salaries paid to employees are counted towards satisfying minimum wage requirements. The same does not apply to stipends.

• Credit cards. When tips are charged on a credit card, the credit companies typically receive a small percentage of the total.

  Employers are allowed to pay their employees the remaining percentage of the tips without violating the FLSA. However, the charge on the tip may not reduce the worker’s wage below minimum wage.

• Employment sector. Minimum wage laws apply to both public and private sector positions.

  Public sector jobs often use pay grades to determine their employees’ wages and salaries. However, the lowest payment tier must still exceed minimum wage requirements.

• Tip retention. Regardless of whether employers decide to include their employee’s tips towards the tip credit, they may not require their workers to turn over their tips.

  Once an employee receives a tip, the tip becomes the sole property of the worker.

References

Department of Labor. “Minimum Wages for Tipped Employees.” Accessed on December 11, 2022.

Department of Labor. “Tips.” Accessed on December 11, 2022.

Author

Conner Martin

Conner is a professional writer and editor who has worked in a variety of different industries and media. He is passionate about communication and about making even complex topics accessible to wide audiences. Conner holds a Master of Professional Writing degree from the University of Oklahoma.