How Does Minimum Wage Apply to Tipped Employees?

Your hard-earned wages are your right—and employers must pay the full minimum wage per hour. Federal and state minimum wage legislation protects all workers, including those who receive tips. 

The minimum wage laws for tipped employees in the United States, however, can be complex, as they differ from the standard minimum wage rules applied to non-tipped workers. 

If you suspect you’ve been cheated out of your earned income, contact Morgan & Morgan to learn about your legal options with a free case evaluation.

Here is how minimum wage applies to tipped employees.

Federal Minimum Wage

Under the Fair Labor Standards Act (FLSA), the federal minimum wage for non-tipped employees is $7.25 per hour. For tipped employees, the federal minimum wage is lower due to the allowance of a "tip credit."

The federal minimum wage for tipped employees is $2.13 per hour, provided that the sum of this wage plus tips equals at least the federal minimum wage of $7.25 per hour.

The tip credit allows employers to count a portion of an employee's tips toward meeting the federal minimum wage requirement. The maximum federal tip credit is $5.12 per hour ($7.25 - $2.13 = $5.12).

Employers must ensure that tipped employees receive at least $7.25 per hour when combining their hourly wage and tips. If the total falls short, the employer must make up the difference—no exceptions.

State Minimum Wage

State minimum wage laws for tipped employees can vary significantly and may provide higher minimum wage rates and different tip credit rules than the federal standards. Some states have set their own minimum wage rates for tipped employees that exceed the federal minimum.

Several states, such as California, Washington, and Oregon, require employers to pay the full state minimum wage to tipped employees without allowing a tip credit. This means that tipped employees in these states must receive the state minimum wage plus any tips they earn.

Other states, like New York, Massachusetts, and Florida, allow a tip credit but often set higher minimum wages and lower maximum tip credits than the federal law. For example, New York has different minimum wage rates and tip credits depending on the region and type of industry.

Some states follow the federal minimum wage and tip credit standards, setting the tipped minimum wage at $2.13 per hour as long as the combined wage and tips meet or exceed $7.25 per hour.

How Is My Employer Responsible for My Tipped Wages?

Employers have several responsibilities when it comes to ensuring that tipped employees are paid in accordance with federal and state minimum wage laws.

Employers must accurately track the tips received by employees. This includes maintaining records of tip amounts reported by employees and ensuring these amounts meet or exceed the required minimum wage when combined with the base hourly wage.

Employers can require tip pooling, where tips are shared among employees who typically receive tips. However, employers must follow specific rules about who can participate in the tip pool. Generally, only employees who regularly receive tips, such as servers, bartenders, and bussers, can be included. Managers and supervisors are typically excluded from tip pools.

Employers must also inform tipped employees about the tip credit provisions. This includes notifying employees in advance about the amount of the tip credit, the employer’s intention to take the tip credit, and ensuring that employees understand their right to retain all tips except for those in a valid tip pool.

If an employee's tips combined with their base wage do not meet the required minimum wage, the employer must compensate for the shortfall. This ensures that employees always receive at least the minimum wage.

What Are Common Issues With Tips?

There are several common issues and legal protections concerning the payment of tipped employees, including:

Tip Theft

Tip theft occurs when employers unlawfully withhold tips from employees. This can include managers taking a portion of tips, failing to distribute pooled tips properly, or not paying the correct wages when tips are insufficient to meet the minimum wage.

Overtime Pay

Tipped employees are entitled to overtime pay at one and a half times their regular rate of pay for hours worked over 40 in a workweek. Employers must calculate overtime based on the full minimum wage rate, not the lower tipped wage.

Service Charges

Service charges (automatic gratuities added to bills for large parties, for example) are not considered tips and belong to the employer. However, if employers distribute service charges to employees, they may count as wages.

Tip Credit Misapplication

Misapplication of the tip credit can occur if employers fail to meet the requirements for taking the tip credit, such as not informing employees about the credit or requiring employees to perform non-tipped duties for a substantial portion of their shift without proper compensation.

Is Paying Less Than Minimum Wage Wage Theft?

If your employer pays you less than the current federal minimum wage of $7.25 an hour or the minimum wage in your state, they are violating labor laws and stealing your wages. 

Unfortunately, this is an all too common practice. Many employers steal their employees’ wages by underpaying them. Figures from the Economic Policy Institute show that minimum wage violations in the U.S. amount to around $15 billion in damages annually. Millions of America’s workers, including tipped employees, are being cheated out of their wages.

You could hold your employer accountable for wage theft and receive compensation, such as back pay with interest, missing tips, attorney’s fees, and other damages. All it takes to get started is a free case evaluation. 

Morgan & Morgan Fights for Workers

Handling a missing wage claim against your employer can be stressful and intimidating, especially if a lot of money is at stake. However, you don’t have to go it alone. 

Morgan & Morgan’s labor and employment lawyers could help you assert your rights and recover what you deserve. We can assess your case and determine the best course of action for recovering the money you are owed. You don’t pay anything upfront when we take your case. That’s right—the Fee Is Free™, and you only pay if we win your case.

Don’t wait. Get justice and the money you need and deserve.