Tipped pay · guide

Tipped minimum wage and the tip credit: when your employer must top up

If you earn tips, your employer may pay you less than the minimum wage in cash and count part of your tips toward it. This guide shows what federal law allows, what your employer must tell you first, when it has to make up the difference, and how your overtime is figured.

$2.13 in cash, $7.25 in all

Under the Fair Labor Standards Act (FLSA), an employer must pay a tipped worker a cash wage of at least $2.13 an hour and may count the worker’s tips toward the rest of the $7.25 federal minimum wage. The part the tips cover is the tip credit: at most $5.12 an hour ($7.25 − $2.13), as DOL Fact Sheet #15 puts it.

A tipped employee is one in an occupation in which they customarily and regularly receive more than $30 a month in tips (29 CFR 531.50). The credit can be smaller than $5.12, never larger, and never more than the tips you actually got (29 CFR 531.59).

Sources: U.S. Department of Labor, Fact Sheet #15: Tipped Employees Under the FLSA; 29 CFR 531.50, Statutory provisions with respect to tipped employees (eCFR); 29 CFR 531.59, The tip wage credit (eCFR)

Your employer must tell you first

An employer cannot take the tip credit unless it has told you in advance: the cash wage it will pay you, the tip credit it claims (no more than the tips you actually receive), that you keep all your tips except in a tip pool limited to employees who customarily and regularly receive tips, and that the tip credit does not apply to an employee who has not been told these things (29 CFR 531.59(b)).

Without that notice, the tip credit does not apply, and the employer owes the full minimum wage in cash.

Sources: 29 CFR 531.59, The tip wage credit (eCFR); U.S. Department of Labor, Fact Sheet #15: Tipped Employees Under the FLSA

When the tips fall short, the employer makes up the difference

The check is made over each workweek: if your cash wage and your tips together do not reach $7.25 an hour for the week, the employer must make up the difference (Fact Sheet #15). To claim the full credit, the employer must show you got at least that much in tips; if you got less, it pays the balance so you earn at least the minimum wage (29 CFR 531.59(b)).

Your tips are yours: the FLSA does not let an employer keep any part of them, and managers and supervisors may not keep any either, whether or not the employer takes a tip credit (29 CFR 531.52).

Sources: U.S. Department of Labor, Fact Sheet #15: Tipped Employees Under the FLSA; 29 CFR 531.59, The tip wage credit (eCFR); 29 CFR 531.52, General restrictions on an employer’s use of its employees’ tips (eCFR)

Overtime is figured on the full $7.25

For a tipped worker the overtime rate is not figured on the $2.13 cash wage: Fact Sheet #15 says overtime must be calculated on the full minimum wage, currently $7.25 an hour. Your regular rate includes the tip credit the employer takes and your cash wage; the tips above the tip credit do not count in it (29 CFR 531.60).

So each hour over 40 in a workweek adds half of $7.25, which the employer pays on top of the cash wage.

Sources: U.S. Department of Labor, Fact Sheet #15: Tipped Employees Under the FLSA; 29 CFR 531.60, Overtime payments (eCFR)

Worked examples

Tips cover the credit: 40 hours at $2.13 pay $85.20 in cash wages. With $250 in tips, the employer takes a tip credit of $204.80 (40 × $5.12), owes a top-up of $0.00, and with 0 hours over 40 the overtime premium is $0.00. The week pays $335.20, or $8.38 an hour.

Tips fall short: 40 hours at $2.13 pay $85.20, but the tips are only $150, so the tip credit is $150.00 and the employer owes a top-up of $54.80. With 0 hours over 40 (overtime premium $0.00), the week pays $290.00: $7.25 an hour, the minimum wage.

A week with overtime: 44 hours at $2.13 pay $93.72. With $300 in tips the tip credit is $225.28 and the top-up $0.00. Each of the 4 hours over 40 adds half of $7.25, an overtime premium of $14.50, and the week pays $408.22, or $9.28 an hour.

If that overtime were figured on the $2.13 cash wage, the 4 hours over 40 would add only $4.26: $10.24 less than the law requires.

These figures come from the tipped wage calculator; enter your own cash wage, tips and hours there to see your week.

Sources: U.S. Department of Labor, Fact Sheet #15: Tipped Employees Under the FLSA; 29 CFR 531.59, The tip wage credit (eCFR); 29 CFR 531.60, Overtime payments (eCFR)

Check your state

These are the federal rules. When state law differs, the employer must follow the standard that protects the employee most (Fact Sheet #15). Many states set a higher minimum wage or a higher cash wage, and some require the full state minimum wage before tips, with no tip credit at all.

The U.S. Department of Labor keeps a table of the minimum cash wage and the tip credit of each state; check your state there, and with its labor department.

Sources: U.S. Department of Labor, Minimum Wages for Tipped Employees (table by state); U.S. Department of Labor, Fact Sheet #15: Tipped Employees Under the FLSA

A guide to what these rules and agencies publish, not legal advice. For your own case, check your state’s labor department. Checked against the eCFR and Department of Labor pages on November 5, 2026.

Open the tipped wage calculator How overtime is calculated How to read your pay stub