Minimum Wage For Employees Who Earn Tips

Complying with minimum wage laws can be challenging for employers with employees who regularly earn tips. Understanding the various federal and state regulations is crucial, as these laws can vary significantly based on factors such as location, company size, and industry.

Key Takeaways:

• Under federal law, a tipped employee is defined as any worker who customarily and regularly receives at least $30 in tips per month.

• The federal minimum cash wage for tipped employees is set at $2.13 per hour.

• Tip credit refers to the maximum amount employers can count toward their employees’ total minimum wage.

• State laws may dictate different minimum wage standards for tipped employees, but the combination of the cash wage and tip credit must equal or exceed the higher of the federal minimum wage of $7.25 or the state’s minimum wage.

Definition of a Tipped Employee

Federal and state laws define tipped employees differently:

• Federal Law: A tipped employee is anyone who regularly receives at least $30 in tips per month.
• State Laws: Some states set a lower threshold of $20 per month for classification as a tipped employee. These states include:
• Texas
• North Carolina
• Kentucky
• Kansas
• Massachusetts
• Illinois
• Hawaii
• Arkansas
• Some states have established higher requirements:
• Alabama: $35 per month.
• Vermont: $120 per month.
• Connecticut: $10 per week.

Regardless of the definition, the wages of tipped employees must be calculated to ensure they earn at least the federal or state minimum wage.

How Tipped Minimum Wage is Calculated

Each state determines its own tipped minimum wage, which must be paid to all classified tipped workers. The tipped minimum wage consists of:

• Basic Cash Wage: This is the minimum wage that employers must pay directly to employees, independent of tips. As of January 2021, federal law mandates a minimum cash wage of $2.13 per hour. If a state has a higher minimum wage, that rate takes precedence.
• Tip Credit: States set a cap on the maximum amount that can be counted as a tip credit. For example, a restaurant with a $15.00 tipped minimum wage might have a cash wage of $10.00 and a tip credit of $5.00. If an employee earns $3.00 in tips per hour, the restaurant must pay them $12.00 to meet the $15.00 minimum. If the worker earns $7.00 in tips, the employer can only count $5.00 toward the tip credit, ensuring the employee still receives the cash wage of $10.00.

States That Do Not Allow Tipped Minimum Wage

Seven states mandate that tipped employees receive the standard minimum wage before tips. These states include:

• Alaska
• California
• Minnesota
• Montana
• Nevada
• Oregon
• Washington

Additionally, certain territories also do not permit a tipped minimum wage, requiring all employees to be compensated at the minimum wage prior to tips:

• American Samoa
• Commonwealth of the Northern Mariana Islands
• Guam

Tipped Minimum Wage Laws by U.S. States and Territories

It is vital for employers to be aware of each state’s tipped minimum wage laws to ensure compliance with all labor regulations. Here’s an updated overview of each state’s requirements:

• 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 (small employers) / $14.00 (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 (hospitality) / $8.23 (bartenders); Maximum tip credit: $5.62 (hospitality) / $3.77 (bartenders).
• 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.
• 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.
• Minnesota: Tipped minimum wage: None; Minimum cash wage: $8.21 (small employers) / $10.08 (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 (over $110,000 in sales) / $4.00 (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 (with health insurance) / $8.25 (without); 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 (food service); Maximum tip credit: $10.40 (food service).
• 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.
• 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 if You Classify as a Tipped Employee

The Fair Labor Standards Act (FLSA) outlines several additional laws specific to tipped employees that are crucial to understand:

• Service Charges: Mandated service charges cannot be classified as tips and instead count as part of the employer’s gross receipts. For instance, a restaurant that charges a 15% service fee for large parties must treat that as revenue.
• Salaries and Stipends: Salaries contribute toward meeting minimum wage requirements, while stipends do not.
• Credit Cards: When tips are given via credit card, service fees may apply, but employers must ensure that the employee’s wage remains at or above the minimum wage.
• Employment Sector: Minimum wage laws apply to both public and private sectors, with public jobs often using pay grades to determine salaries, ensuring the lowest tier still exceeds minimum wage requirements.
• Tip Retention: Employees are not required to turn over their tips to employers, as tips are the sole property of the worker once received.

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.