Tipped minimum wage is the lowest amount that businesses, like restaurants and resorts, can pay their tipped employees. Currently, the federal tipped minimum wage is $2.13 per hour, but each state has its own regulation.
The tipped minimum wages paid by the employer plus the tips received need to equal at least the full minimum wage when combined (the federal minimum wage is currently $7.25 an hour; states vary). Otherwise, employers are responsible for making up the difference. Paying tipped minimum wage can save money, but calculations can be time-consuming, and participating employers are subject to oversight.
How Tipped Minimum Wage Works
Tipped minimum wage allows tipped employees to be paid at a lower rate by their employer. Per federal law, tipped employees are workers who regularly receive more than $30 a month in tips.
Employees who would be considered “tipped employees” include, but are not limited to:
- Waitstaff: Waitstaff includes the servers (waiters and waitresses) who take food and drink orders and deliver them to customers.
- Bartenders: Bartenders typically work behind the bar serving alcoholic beverages.
- Valet parking attendants: Valet parking attendants provide a parking service to incoming customers, usually at a high-end restaurant or hotel.
Although there are other employee types, such as cooks and hosts, who may regularly receive tips as part of a tip-sharing program, you aren’t allowed to pay them a tipped employee minimum wage.
If you have tipped employees and are in a state that follows the federal minimum wage, you can apply a federal tax credit of up to $5.12 per hour to reduce their hourly cash rate paid. This equals a federal minimum tipped wage of $2.13 per hour ($7.25 – $5.12). Many states have their own maximum credit against that minimum wage that determines how much of an employee’s income can be made up of tips. You’ll have to account for this in your employees’ pay and may change how you do payroll.
Tipped employees are responsible for tracking and reporting tips received from all sources, and you’re required to report the information to the IRS. Any errors, whether intentional or not, can lead to penalties and unexpected taxes for violation of payroll compliance laws.
Remember, the $2.13 tipped workers minimum wage only relates to federal law; as shown below, many states have their own tipped minimum wage laws in place. When faced with conflicting federal, state, and local wage laws, always abide by the ones that give employees the most protection.
State-by-State Tipped Minimum Wage
There’s no standard tipped employee minimum wage for each state. States like Texas and Georgia don’t have any specific wage laws for tipped employees and follow the federal rate. Some states (Florida and Colorado, for example), have tipped minimum wage rates higher than the $2.13 federal rate, while Montana, Nevada, and other states don’t allow paying a tipped minimum wage, requiring employers to pay the full state minimum wage.
Click on any state in the map below to view the tipped minimum wage and max credit against the minimum wage for that state.
Tipped Minimum Wage Clickable State Map
State-by-State Tipped Minimum Wage
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Related Laws for Tipped Minimum Wage
Paying your state’s tipped minimum wage subjects you to potential oversight in reporting. You’re responsible for notifying all new hires of your tip credit policies before they begin working. In addition, federal law requires that you withhold payroll taxes from all tips, whether received in cash, by credit card, or other means. This leads to additional reporting responsibilities for your employees, who must be honest about the tips they receive directly from customers.
Keep in mind that although your state may give you the option to take a tip credit, you shouldn’t feel forced to participate. Instead, you can pay your employees the minimum wage that applies to your state. You can also opt to take a partial credit against your employees’ hourly wages, which allows you to take advantage of the tip credit allowance while ensuring your employees are paid at least minimum wage. For instance, for the federal tipped minimum wage, you are allowed to take up to $5.12 in credit, reducing your employee’s pay to $2.13 per hour. You can choose to pay more than $2.13 per hour and only take partial credit.
Click the tabs below to learn more tipped minimum wage laws:
The Department of Labor limits the amount of time a tipped employee can engage in non-tipped activities to 20% of the hours worked in their workweek, with continuous periods of no more than 30 minutes. Further, such activities must be in support of tip-related work, such as cleaning tables for waitstaff. For a longer time, they must be paid at full minimum wage at least.
Example: You employ a waiter at your restaurant. Typically this employee is waiting tables and serving food, but your host has called out of work and you need to fill the gap. You move the employee from waitstaff to host for the remainder of the evening (a period of three to four hours). During this timeframe, you are required to pay the employee at least the federal minimum wage (not tipped workers minimum wage) for the host work performed. Keep in mind that if your state has a higher minimum wage than the federal limit, you will be required to pay the higher wage.
Pros & Cons of Paying Tipped Minimum Wage
In some cases, paying a tipped minimum wage helps employers save money while still allowing employees to receive a decent wage. In other cases, the employees receive the short end of the stick. Take time to consider the pros and cons of offering tipped wages to your employees. It works for some employers, but not as well for others.
| PROS | CONS |
|---|---|
| Less expense: When employers pay tipped wages versus regular wages, they can save money. | Time consuming: Tracking and reporting tips require additional time from employees and employers. |
| Additional tax credit: Employers who pay tipped wages may be entitled to a FICA tip credit at tax time. This is a credit for taxes paid on tips received that were over the minimum wage requirement. | Employees may feel resentful: Some employees may be upset that back-of-house employees, like cooks and dishwashers, receive higher pay while tipped employees only receive the minimum wage. |
| Better service: Workers may be more motivated to provide exceptional service since the majority of their income could potentially come directly from tips. | Error prone: Because you have to rely on calculations and employee honesty for accurate tip reporting, errors are more likely to occur. This can lead to unexpected taxes, back pay, and potential jail time. |
Tipped Minimum Wage Frequently Asked Questions (FAQs)
A tip is a gratuity, usually in cash, given by a customer to a service worker for work performed (such as a waitress or hospitality worker). The gratuity can be any denomination to qualify as a tip.
Any employee who works in an occupation where they regularly receive more than $30 in tips monthly. Such occupations include restaurant waitstaff, hotel bellhops, bartenders, delivery drivers, and other individuals who receive tips for their services.
Tipped employees must make a minimum of $2.13 per hour plus tips. This is the federal tipped minimum wage requirement. In addition, wages plus tips must equal the federal regular minimum wage of $7.25 per hour, unless your state has a higher minimum wage in place.
Bottom Line
It’s important for employers with tipped employees, especially restaurateurs, to check the minimum wage for tipped employees by individual states before setting hourly wage amounts. The laws vary—some states don’t require the standard minimum wage—and any violations can result in the employer paying back wages and penalties.
