StateWages US pay, payroll and pay literacy, verified 2026-10-31

Tipped minimum wage and the employer tip credit

Minimum wage-Last verified 2026-10-31

Federal law lets an employer count tips toward its minimum wage obligation. The cash wage may fall to $2.13 an hour and the employer claims a tip credit of up to $5.12 an hour to reach $7.25. If tips plus the $2.13 do not reach the full minimum for the week, the employer must pay the difference in cash.

The credit only applies if three conditions hold

  1. The employer told you the credit was being taken. Silence is not enough.
  2. You keep all the tips you earn, apart from a valid pooling arrangement.
  3. Your tips plus cash wage reach the full minimum wage for every hour worked in the week.

Break any one and the credit is gone for that period, meaning the full minimum applies to all hours.

Dual jobs and the 80/20 rule

If you work both tipped and non-tipped hours, the credit applies only to the tipped ones. Department guidance allows an employer to take the credit for tipped staff doing incidental non-tipped work up to 20 per cent of the workweek. Beyond 20 per cent, the non-tipped hours must be paid at the full minimum, and a longer stretch of non-tipped work in one sitting is treated as a separate duty regardless of the weekly total.

Tip pooling and service charges

Pooling among customarily tipped staff is permitted even when the employer takes a credit. Managers and supervisors may join a pool only if they regularly receive tips directly. A mandatory service charge is not a tip at all, so the employer may keep or redistribute it under its own rules, and the credit cannot be taken against it.

Keep your own tally

Record hours, cash wage and tips received weekly. If the total drops below the full minimum, the shortfall is owed by the employer, and the burden of proving the tip credit was valid sits with them.

Our takeThe tip credit is legal, but it is also the most audited corner of wage law, because it puts the employer's money in the customer's hand. Keep your own record of hours and tips and the arithmetic settles itself.